LTCG tax: Indexation benefit extended to unlisted firms

Giving some relief to investors, the government on Wednesday extended indexation benefit for computing tax liability on sale of shares listed after January 31, though capital gains arising from such transactions will continue to be taxed at 20 per cent.

The indexation benefit, which takes into account the impact of inflation on acquisition cost, will not be available on gains made from sale of listed securities, as per the amendments to the Finance Bill, which was passed by Lok Sabha on Wednesday.

Currently, 15 per cent tax is levied on capital gains made on sale of shares within a year of purchase. However, LTCG tax is nil for shares sold after a year of purchase.

LTCG on sale of unlisted shares is taxed at 20 per cent, while in case of short term capital gains it is 30 per cent. The finance ministry had received various representations demanding removal of LTCG tax.

Nangia & Co Managing Partner Rakesh Nangia said the amendment addresses the concerns of the community in respect of capital gains arising on transfer of unlisted shares that get listed after February 1, 2018.

"The Finance Bill provides that the indexed cost of acquisition of such shares shall be considered for the purpose of computing capital gains. This amendment has partly addressed the concern, since the Cost Inflation Index may not completely account for the rise in the fair market value of such share," Nangia said.