SCRIPS BOUGHT AF­TER OCT 1, 2004 PEs, Esops Face STT Goo­gly on Un­listed Shares

10% long-term cap gains tax if STT not paid while buy­ing stock; rev secy says gen­uine in­vestors needn’t fear

The Economic Times - - Front Page - Reena Zachariah & Sneha Shah

Mum­bai: Pri­vate eq­uity funds and hold­ers of stock op­tions were thrown into con­fu­sion by a Bud­get pro­vi­sion aimed at plug­ging a black money loop­hole, fear­ing that it could land them with a hefty tax bill. Those who ac­quired shares in un­listed com­pa­nies af­ter Oc­to­ber 1, 2004, will have to pay 10% long

All In A Day term cap­i­tal gains tax if they hadn’t paid se­cu­ri­ties trans­ac­tion tax (STT) at the time of pur­chase. Cur­rently, in­come aris­ing from the trans­fer of long-term cap­i­tal as­sets such as stocks is ex­empted from tax if the sale took place on or af­ter Oc­to­ber 1, 2004. STT, which was in­tro­duced that year, typ­i­cally ap­plies to listed stocks.

“It has been no­ticed that ex­emp­tion pro­vided un­der Sec­tion 10(38) is be­ing mis­used by cer­tain per­sons for declar­ing their un­ac­counted in­come as ex­empt long-term cap­i­tal gains by entering into sham trans­ac­tions,” ac­cord­ing to the Bud­get. “With a view to pre­vent this abuse, it is pro­posed to amend Sec­tion 10(38).”

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