Taxmen notify norms on LTCG to avoid sham deals

The Central government has exempted equity investments through bonus or rights issues by a listed company from long-term capital gains tax even if no securities transaction tax (STT) was paid on the transfers.

Tax officials had found that people were declaring unaccounted income as exempted long-term capital gain by entering into sham transactions through shell companies.

To curb this, an amendment was brought by the finance minister in the Union Budget 2017 to exempt income arising on transfer of equity share from tax, only if the acquisition of share is chargeable to Securities Transaction Tax (STT).

However, to protect the exemption for genuine cases where the STT could not have been paid, it was also provided that Centre will notify the acquisition for which the condition of chargeability to STT will not apply.

As per the notification issued by CBDT on Monday, the government has also exempted holding subsidiary transactions or transactions involving mergers/demergers, equity investments made by a non-resident under FDI regulations, employee stock options or gifts in the form of shares from long term capital gains tax.

Now people will have to pay tax, where an acquisition of a listed equity share, which is not frequently traded in a recognised stock exchange (like BSE or NSE), takes place through preferential issue. In this case, tax will be applicable only if STT has not be paid.

Acquisitions, where the listed scrip is not purchased over a stock exchange, and acquisition during the delisting period of the company, will be taxable. In both cases, tax will be applicable, only if STT has not been paid.