Skip to main content

ESOPs, M&As out of capital gains tax net


The Central Board of Direct Taxes (CBDT) has provided relief for genuine transactions through which shares were acquired without paying the securities transaction tax (STT).

According to final regulations released on Tuesday, the board provided exemptions for employee stock options (ESOPs) and duly approved mergers and acquisitions (M&As). It also kept shares acquired under the foreign direct investment (FDI) policy out of the ambit of rules on curbing tax evasion through investments in penny stocks.

The tax authority also exempted institutional investors and scheduled banks.The exemption is only for institutions registered as qualified institutional buyers with the Securities and Exchange Board of India (Sebi).

The exemption to banks is aimed at keeping shares acquired through debtequity conversion underaloan restructuring out of the purview of the rules.Only three scenarios will attract capital gains if shares were acquired without paying the STT. The first scenario is when listed shares are acquired through preferential allotment in companies that are not traded frequently on stock exchanges.

Typically, these are penny stocks.The tax department is investigating several cases where unaccounted money was used for sham transactions in penny stocks to claim capital gains tax exemption.

Through these regulations, the tax authorities have tightened several loop holes in the capital gains tax regime.“The final guidelines are exhaustive yet simple.They have dispelled every genuine concern.

At the same time, the government has cracked the whip on investors who use the longterm capital gains tax exemption to reroute unaccounted money,” said Girish Vanvari, partner and national head of tax, KPMG.

The second scenario in which longterm capital gains tax will be applicable is where shares have been acquired outside the stock exchange platform.The third scenario is when an investor buys shares just afterafirm is delisted and sells once it relists.

Tax experts said the regulations had provided an exhaustive list of exemptions based on feedback received and these would address all investor concerns.

The notification has not adversely altered the longterm capital gains provision for sale of listed shares, which is an important tax incentive for the securities markets,” said Amit Singhania, partner, Shardul Amarchand Mangaldas.

However, the final regulations have also left out few types of transactions from the exemption list. These include issue of shares against warrants, interse transfer of shares between promoters, strategic acquisitions by private investors.

Further, the institutions which are not recognised by Sebi as QIBs will also not get any exemptions.Such institutions include Category III alternate investment funds, investments made by portfolio management services and broadbased funds.

The Union Budget 201718 had proposed introduction of antiabuse provisions and had said the longterm capital gains tax exemption on transfer of shares acquired on or after October 1, 2004, would be available only if the STT was paid at the time of acquisition.

However, this move would not have allowed the exemption in several genuine cases where the STT could not have been paid.Subsequently, the CBDT sought opinion from
stakeholders and issued the notification today.

The proposed changes will be added to Section 10(38) of the Income Tax Act and will come into effect from April 1, 2017. The regulations will only apply to share purchases after October 1, 2004.

Business Standard New Delhi, 07th June 2017

Comments

Popular posts from this blog

New income tax slab and rates for new tax regime FY 2023-24 (AY 2024-25) announced in Budget 2023

  Basic exemption limit has been hiked to Rs.3 lakh from Rs 2.5 currently under the new income tax regime in Budget 2023. Further, the income tax slabs in the new tax regime has been changed. According to the announcement, 5 income tax slabs will be there in FY 2023-24, from 6 income tax slabs currently. A rebate under Section 87A has been enhanced under the new tax regime; from the current income level of Rs.5 lakh to Rs.7 lakh. Thus, individuals opting for the new income tax regime and having an income up to Rs.7 lakh will not pay any taxes   The income tax slabs under the new income tax regime will now be as follows: Rs 0 to Rs 3 lakh - 0% tax rate Rs 3 lakh to 6 lakh - 5% Rs 6 lakh to 9 lakh - 10% Rs 9 lakh to Rs 12 lakh - 15% Rs 12 lakh to Rs 15 lakh - 20% Above Rs 15 lakh - 30%   The revised Income tax slabs under new tax regime for FY 2023-24 (AY 2024-25)   Income tax slabs under new tax regime Income tax rates under new tax regime O to Rs 3 lakh 0 Rs 3 lakh to Rs 6 lakh 5% Rs 6

Jaitley plans to cut MSME tax rate to 25%

Income tax for companies with annual turnover up to ?50 crore has been reduced to 25% from 30% in order to make Micro, Small and Medium Enterprises (MSME) companies more viable and also to encourage firms to migrate to a company format. This move will benefit 96% or 6.67 lakh of the 6.94 lakh companies filing returns of lower taxation and make MSME sector more competitive as compared with large companies. However, bigger firms have shown their disappointment since the proposal for reducing tax rates was to make Indian firms competitive globally and it is the large firms that are competing globally. The Finance Minister foregone revenue estimate of Rs 7,200 crore per annum for this for this measure. Besides, the Finance Minister refrained from removing or reducing Minimum Alternate Tax (MAT), a popular demand from India Inc., but provided a higher period of 15 years for carry forward of future credit claims, instead of the existing 10-year period. “It is not practical to rem

Don't forget to verify your income tax return in August: Here's the process

  An ITR return needs to be verified within 120 days of filing of tax return. Now that you have filed your income tax return, remember to verify it because your return filing process is not complete unless you do so. The CBDT has reduced the time limit of ITR verification to 30 days (from 120 days) from the date of return submission. The new rule is applicable for the returns filed online on or after 1st August 2022. E-verification is the most convenient and instant method for verifying your ITR. However, if you prefer not to e-verify, you have the option to verify it by sending a physical copy of the ITR-V. Taxpayers who filed returns by July 31, 2023 but forget to verify their tax returns, will get the following email from the tax department, as per ClearTax. If your ITR is not verified within 30 days of e-filing, it will be considered invalid, and may be liable to pay a Late Fee. Aadhaar OTP | EVC through bank account | EVC through Demat account | Sending duly signed ITR-V through s