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  • Govt softness capital gains tax blow

    Publish Date : 04 Apr 2017

    Providing relief to genuine transactions where the securities transaction tax (STT) was not paid at the time of purchase of shares, the government on Monday proposed to keep these out of the purview of the capital gains tax, introduced in the Finance Act, 2017. The Central Board of Direct Taxes (CBDT) has proposed three scenarios where the capital gains tax would be levied and has kept other transactions out of the purview. “The CBDT has done the right thing by keeping the exceptions to the capital gains tax to the minimum. This will allay the fears of investors,” said Amit Maheshwari, partner, Ashok Maheshwary and Associates LLP. The CBDT issued a draft notification and sought stakeholders’ comments on it by April 11. The government’s aim is to curb the practice of declaring unaccounted income as exempted long-term capital gains by entering into sham transactions.

    The income tax department is investigating several cases, including using the equity route to launder money, evade taxes and share price manipulation. The three scenarios that would attract the capital gains tax are: Acquisition of listed shares through preferential allotment that are not traded frequently on the stock exchanges; where listed shares are not purchased over the exchange platform; acquisition of shares just after a company is delisted and before it gets listed again. Shares sold after October 1, 2004, are exempt from the long-term capital gains tax if the STT was paid at the time of transfer. The Finance Act, 2017, amended the provisions to check instances of malpractice and misuse by allowing exemption only if the STT was paid at the time of acquisition of shares or could not be paid in genuine cases such as initial public offering, bonus or rights issues. Experts, however, said although the notification had provided some relief to genuine transactions, the regulations needed more clarity.

    “The draft is intended to curb malpractices to circumvent tax payment. However, the clause about listed shares not purchased from stock exchanges needs further clarification so that unintended transactions are not impacted,” said Rahul Garg, partner and leader (direct tax), PwC. However, tax experts seek clarity on transactions such as gifts, inheritance, private equity investments and employee stock option plans (ESOPs).Sanjay Sanghvi, partner, Khaitan & Co, said, “The notification needs to clearly spell out genuine cases of investments like FDI/private equity investments, ESOPs etc that will help avoid litigation and doubts.”  - www.business-standard.com[04-04-2017]

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