BSE chief vows to crack down on tax evasion

Stock markets cannot be allowed to be misused by manipulators for evasion of taxes and the BSE has put in place a strong surveillance mechanism to check any such misdeeds, the exchange’s Chief Exec utive Officer Ashish Chauhan has said.

He also urged the government to have a fresh look at laws for further tightening of rules and removing the loopholes in the capital gains tax exemption framework to stop tax evasion through stock market trading.

In an interview to PTI, Chauhan also said there was a widely held perception that only penny stocks were manipulated for tax evasion. But there was a need to study whether larger stocks were also being used for such misdeeds, as 80-90 per cent of capital gains tax exemption being claimed were from the larger companies.

In the Budget this year, the government announced a major step to check tax evasion through penny stocks by limiting the longterm capital gains tax exemption only in stocks in which purchase securities transaction tax (STT) was levied. In case of shares purchased off-market or without levy of STT, the incentive would now be limited to only some genuine transactions such as IPOs and a few other cases.

Chauhan said it was a move in the right direction as such exemption would not be available any more for preference shares that were mainly used for evasion of taxes, but some more steps are required to fully check the loopholes.

There have been several cases that have come to light in recent years where penny stocks were used for tax evasion through manipulation in shares of thinly traded companies.

The BSE has been as such proactive over the years for delisting of stocks were no trades have taken place for a long time, after giving due time to those companies for compliance.

Talking about penny stocks, Chauhan said, “One thing is price manipulation and the other is tax evasion. So, we have taken up it with the government that since you have this regulation of capital gains tax exemption after one year, which is promoting this kind of tax evasion behaviour, you should stop having this exemption. You should stop this exemption and that would stop price manipulation based on tax evasion. Then the normal price discovery would happen.”