Skip to main content

New tax plans worry market participants

By


Wording of draft circular spells uncertainty for ESOPs, off-market transactions and shares acquired through mergers

Aset of proposals for capital gains tax on shares acquired without paying the Securities Transaction Tax (STT) is creating nervousness in the stock markets. 

The government has asked for reactions to be sent by the coming Tuesday. Legal experts say the wording of the draft notification could expose employee stock options (ESOPs) and off-market share purchases to capital gains. 

According to the circular's Clause (B), acquiring any listed company's shares other than through a recognised stock exchange would attract capital gains. Although ESOPs are commonly considered subscriptions, several judgments delivered by courts have highlighted that these are purchases made by employees in the form of services rendered to the company. Also, allotment of ESOPs doesn’t take place on a stock exchange platform. Hence, ESOPs would attract Clause (B).

“If the intention is not to tax ESOPs, there should explicitly be an exception in the final circular,” said Amit Singhania, partner, Shardul Amarchand Mangaldas.

Experts say the circular could also end impact many other genuine transactions, including off-market ones and shares acquired through mergers and acquisitions (M&As).

Off-market transactions are share transfers outside of a stock exchange platform. The route is commonly used to transfer shares within a family, for inheritance purposes. The route is also used during purchase agreements between the promoter of a company and strategic investors. The advantage of conducting such transactions outside a stock exchange is insulation from a fall in share prices as a result of volumes generated due to the deal.

“The open wording of Clause (B) might have wider ramifications. Exposing such genuine transactions to the proviso would only cause hardships to the business, and is against the genesis behind introduction of the measures,” said Ravi Mehta, partner, Grant Thornton.

What is making the market more nervous is that the provisions would apply to shares sold after October 1, 2004, when the STT regime came into effect. The tax authority has specified three scenarios that would attract capital gains tax. Clause (A) deals with acquisition of shares through preferential allotment in listed companies which are not traded frequently. The second scenario 
(Clause B) involves listed shares bought outside an exchange platform. A third scenario (Clause C) is on acquisition of shares while a company is delisted and before it gets listed again.

Through these measures, the government says it aims to curb the practice of declaring unaccounted income as exempted long-term capital gains, via sham transactions. As mentioned, the market worries that the impact will also fall on genuine M&As and ESOPs.

05TH APRIL,2017,BUSINESS STANDARD,NEW-DELHI

Comments

Post a Comment

Popular posts from this blog

RBI deputy governor cautions fintech platform lenders on privacy concerns during loan recovery

By
  India's digital lending infrastructure has made the loan sanctioning system online. Yet, loan recovery still needs a “feet on the street” approach, Swaminathan J, deputy governor of the Reserve Bank of India, said at a media event on Tuesday, September 2, according to news agency ANI.According to the ANI report, the deputy governor flagged that fintech operators in the digital lending segment are giving out loans to customers with poor credit profiles and later using aggressive recovery tactics.“While loan sanctioning and disbursement have become increasingly digital, effective collection and recovery still require a 'feet on the street' and empathetic approach. Many fintech platforms operate on a business model that involves extending small-value loans to customers often with poor credit profiles,” Swaminathan J said.   Fintech platforms' business models The central bank deputy governor highlighted that many fintech platforms' business models involve providing sm
Post a Comment
Read more

Credit card spending growth declines on RBI gaze, stress build-up

By
  Credit card spends have further slowed down to 16.6 per cent in the current financial year (FY25), following the Reserve Bank of India’s tightening of unsecured lending norms and rising delinquencies, and increased stress in the portfolio.Typically, during the festival season (September–December), credit card spends peak as several credit card-issuing banks offer discounts and cashbacks on e-commerce and other platforms. This is a reversal of trend in the past three financial years stretching to FY21 due to RBI’s restrictions.In the previous financial year (FY24), credit card spends rose by 27.8 per cent, but were low compared to FY23 which surged by 47.5 per cent. In FY22, the spending increased 54.1 per cent, according to data compiled by Macquarie Research.ICICI Bank recorded 4.4 per cent gross credit losses in its FY24 credit card portfolio as against 3.2 per cent year-on-year. SBI Cards’ credit losses in the segment stood at 7.4 per cent in FY24 and 6.2 per cent in FY23, the rep
Post a Comment
Read more

India can't rely on wealthy to drive growth: Ex-RBI Dy Guv Viral Acharya

By
  India can’t rely on wealthy individuals to drive growth and expect the overall economy to improve, Viral Acharya, former deputy governor of the Reserve Bank of India (RBI) said on Monday.Acharya, who is the C V Starr Professor of Economics in the Department of Finance at New York University’s Stern School of Business (NYU-Stern), said after the Covid-19 pandemic, rural consumption and investments have weakened.We can’t be pumping our growth through the rich and expect that the economy as a whole will do better,” he said while speaking at an event organised by Elara Capital here.f there has to be a trickle-down, it should have actually happened by now,” Acharya said, adding that when the rich keep getting wealthier and wealthier, they have a savings problem.   “The bank account keeps getting bigger, hence they look for financial assets to invest in. India is closed, so our money can't go outside India that easily. So, it has to chase the limited financial assets in the country and
Post a Comment
Read more