Off-market deals under scanner

Sebi asked to provide details of such transactions for finance ministry and tax department to study these and issue final guidelines on ‘anti-abuse’ measures

The finance ministry has sought an “exhaustive list” of wide-ranging off-market transactions from the Securities and Exchange Board of India, to decide whether investors have to pay long-term capital gains (LTCG) tax under a new rule. The proposed clause in this year’s Budget says those who acquired shares in unlisted companies after October 1, 2004, will have to pay LTCG if they hadn’t paid securities transaction tax (STT) at the time of purchase. At present, STT is not paid when shares are acquired in off-market transactions such as mergers and acquisitions,qualified institutional placements or private equity investments in unlisted companies.

The ministry official and the tax department are working closely to finalise guidelines,to be issued after considering the concerns raised by market players, said the Central Board of Direct Taxes (CBDT).

“Weare in touch with the capital market regulator.We had sought information about some of the categories of allotments / placements where checking can be done,”CBDT Chairman Sushil Chandra told

Business Standard .“As a large number of persons are involved, we need to examine if back-dated purchases have been done or someone is taking advantage of LTCG exemptions.

We are receiving a very exhaustive list from the regulator and,accordingly,we will come up with a clarification.” The central government has clarified that transactions such as a rights or bonus issue or initial public offerings, foreign direct investments (FDI) where there is no incidence of STT would be exempt.

But, there is lack of clarity on various categories such as private placements,employee stock options and the shares a company acquired before it gets listed.

“There is no need to worry at all on the issue.We have brought this as an‘anti-abuse’ measures,” Chandra said. “This is not are venue raising avenue for us. This provision will be exempting all genuine cases of allotment of shares without payment of STT.So,if there is a person who got shares out of IPO/FPO or if it is a genuine FDI coming via unlisted companies or bonus shares,these will not be covered.We are very clear on this.” On the rationale behind the new clause,Chandra said, “It has been noticed during search operations that the exemptions provided are being misused by certain persons for declaring their unaccounted income as exempt LTCG by entering into sham transactions.In some cases, brokers were found misusing the LTCG exemption through off-market purchases. The new provision is for those utilising their money and converting it through penny stocks and jacking up prices to a particular level and then using the exit route to convert their black money into white.” Tax experts said the new provision could create confusion and there was no need for such clauses when the government would notify the General Anti-Avoidance Rules for preventing companies from routing transactions through other countries and avoiding taxes.“Why does the government require the new clause?It was set to evoke anti-avoidance tax rules from April 1,”said Sudhir Kapadia, partner and national tax leader,EY India.“The adoption of anti-abuse rules in tax treaties helps target shell companies or holding companies,incorporated overseas to evade taxes by showing the irresidency as a tax haven, though the management and effective decision-making takes place in India.” The market regulator’s surveillance mechanis mis strong.Stock exchange systems raise an alarm in case of price manipulation,he said. “The new clause and the related exemptions would only create confusion among market participants.This has to be only for penny stocks, created with the intent of evading long-term capital gains tax,”he added.

06TH FEBRUARY,2017, BUSINESS STANDARD, NEW-DELHI

Household debt up, but India still lags emerging-market economies: RBI

Although household debt in India is rising, driven by increased borrowing from the financial sector, it remains lower than in other emerging-market economies (EMEs), the Reserve Bank of India (RBI) said in its Financial Stability Report. It added that non-housing retail loans, largely taken for consumption, accounted for 55 per cent of total household debt.As of December 2024, India’s household debt-to-gross domestic product ratio stood at 41.9 per cent. “...Non-housing retail loans, which are mostly used for consumption purposes, formed 54.9 per cent of total household debt as of March 2025 and 25.7 per cent of disposable income as of March 2024. Moreover, the share of these loans has been growing consistently over the years, and their growth has outpaced that of both housing loans and agriculture and business loans,” the RBI said in its report.Housing loans, by contrast, made up 29 per cent of household debt, and their growth has remained steady. However, disaggregated data sho...

External spillovers likely to hit India's financial system: RBI report

While India’s growth remains insulated from global headwinds mainly due to buoyant domestic demand, the domestic financial system could, however, be impacted by external spillovers, the Reserve Bank of India (RBI) said in its half yearly Financial Stability Report published on Monday.Furthermore, the rising global trade disputes and intensifying geopolitical hostilities could negatively impact the domestic growth outlook and reduce the demand for bank credit, which has decelerated sharply. “Moreover, it could also lead to increased risk aversion among investors and further corrections in domestic equity markets, which despite the recent correction, remain at the high end of their historical range,” the report said.It noted that there is some build-up of stress, primarily in financial markets, on account of global spillovers, which is reflected in the marginal rise in the financial system stress indicator, an indicator of the stress level in the financial system, compared to its p...

Retail inflation cools to a six-year low of 2.82% in May on moderating food prices

New Delhi: Retail inflation in India cooled to its lowest level in over six years in May, helped by a sharp moderation in food prices, according to provisional government data released Thursday.Consumer Price Index (CPI)-based inflation eased to 2.82% year-on-year, down from 3.16% in April and 4.8% in May last year, data from the Ministry of Statistics and Programme Implementation (MoSPI) showed. This marks the fourth consecutive month of sub-4% inflation, the longest such streak in at least five years.The data comes just days after the Reserve Bank of India’s (RBI) Monetary Policy Committee cut the repo rate by 50 basis points to 5.5%, its third straight cut and a cumulative reduction of 100 basis points since the easing cycle began in February. The move signals a possible pivot from inflation control to supporting growth.Food inflation came in at just 0.99% in May, down from 1.78% in April and a sharp decline from 8.69% a year ago.A Mint poll of 15 economists had projected CPI ...

CA Online

Search This Blog