If a numismatic note is given as a corporate gift and later sold by the recipient, how is the cost of acquisition calculated for capital gains purposes?
When the recipient of a corporate gift sells the gifted note, their capital gain is calculated as: selling price minus cost of acquisition. The cost of acquisition for a gifted note is the fair market value of the note on the date the gift was made — not zero, and not the company's purchase price. This prevents double taxation: the recipient was already taxed on the fair market value when they received it (as salary perquisite or Section 56(2)(x) income). Their capital gain is only the appreciation from the gift date onwards.
The Section 49 framework for acquired-without-cost assets
Section 49 of the Income Tax Act governs the cost of acquisition for assets received in certain modes other than direct purchase. Section 49(1) covers assets received as gifts or under a Will — the cost to the original owner. Section 49(2A) covers assets received as perquisites — the fair market value as on the date on which the perquisite accrued. This 49(2A) provision applies to the employee recipient of a corporate gift.
For an employee who received a note as a perquisite (corporate gift) valued at ₹50,000 on the gift date: cost of acquisition = ₹50,000 (fair market value on gift date). If the employee sells the note five years later for ₹1,20,000, the capital gain = ₹1,20,000 − indexed cost of ₹50,000 (adjusted for CII). The employee does not pay capital gains on the full ₹1,20,000 — only on the appreciation since the gift date.
For non-employee recipients — Section 56(2)(x) and cost basis
A business associate who received the note as a client gift and was taxed under Section 56(2)(x) at the fair market value also uses the fair market value on the date of receipt as the cost of acquisition. Section 49(4) provides that where property has been included in the recipient's income under Section 56(2)(x), the fair market value so included is the cost of acquisition for capital gains purposes.
This prevents the anomaly where a recipient is taxed twice — once when receiving the gift, and again on the full sale price when selling. The two tax events together cover the full economic gain from the original source through to the ultimate sale.
Documentation requirement
The key documentation for the recipient is evidence of the fair market value on the gift date. This is typically the company's Form 16 (for employee perquisites) showing the value at which the gift was included in salary, or the Section 194R TDS certificate showing the value on which TDS was deducted. Without this documentation, establishing the cost of acquisition for future capital gains becomes difficult. A recipient should request and retain these documents at the time of receiving the gift — not years later when preparing a tax return for the sale.
Additionally, the recipient should maintain evidence of the gift itself — a letter from the company confirming the gift, a description of the note gifted, and the date. This establishes the acquisition event and the holding period from which the 24-month threshold is counted.
The holding period for corporate gifts
The holding period for capital gains purposes begins on the date the gift was received — not from any earlier date. A note gifted on 1 April 2024 and sold on 1 June 2026 has been held for 26 months — qualifying for long-term capital gains treatment with indexation. The 24-month threshold is the same as for directly purchased assets.
Laws & authorities referenced in this chapter
Income Tax Act 1961 — §49(2A) (cost of acquisition for perquisite assets — fair market value on date of accrual)
Income Tax Act 1961 — §49(4) (cost of acquisition for §56(2)(x) gifted assets — fair market value as taxed)
Income Tax Act 1961 — §2(42A) (24-month holding period threshold — applies from date of gift receipt)
Income Tax Act 1961 — §48 (capital gains computation — indexed cost of acquisition for long-term)
Cost of acquisition for gifted note: fair market value on gift date — confirmed by §49(2A) (employee perquisite) and §49(4) (§56(2)(x) income recipient). Prevents double taxation. Employee: fair market value from Form 16. Client/associate: fair market value from §194R TDS certificate. Holding period: from date of gift receipt (same 24-month threshold applies). Get and retain gift documentation + valuation evidence immediately — capital gains calculation years later depends on it.
This is educational content, not legal advice. For a specific situation, please consult a qualified legal professional. Excerpted from Currency, Coins & The Law by Mayank Agarwal, Part 6: The Invisible Obligation.