LTCG tax: No STT likely on employee stock options plans, inherited shares

LTCG tax: No STT likely on employee stock options plans, inherited shares

Listed shares received through family succession or will of the deceased and acquired till January 31 will not attract STT

The income-tax (IT) department has proposed to exempt employee stock options plans (ESOPs) given till January 31, 2018, from the securities transaction tax (STT), while availing the benefits of grandfathering and threshold exemption in long-term capital gains (LTCG) tax at 10 per cent.

Also, listed shares received through family succession or will of the deceased and acquired till January 31 will not attract STT. The department has sought comments on these proposals by April 30.

There have been queries on whether the 10 per cent LTCG tax will be applicable if STT was not paid at the time of acquiring certain off-market transactions or whether these assessees will have to pay LTCG tax under different provisions where certain concessions were not available.

The new tax is imposed under Section 112 (A) if listed securities are sold in the current financial year subject to exemption of Rs 100,000 of capital gains. Besides, there is grandfathering of capital gains made till January 31, 2018, or in other words, there is no LTCG tax on these gains.

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However, if STT is not paid on these shares at the time of purchase, LTCG tax is imposed under Section 112 — 10 per cent without indexation and 20 per cent with indexation. Here the Rs 100,000 concession and grandfathering benefit are not available.

In a draft notification, the department gave a list of off-market transactions till January 31, 2018, where STT need not be paid and LTCG tax has to be paid under Section 112 (A). However, the notification is silent on the situation where such transactions happen after January 31, 2018. Section 112 (A) replaces Section 10 (38) of the I-T Act. 

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Naveen Wadhwa, tax expert with Taxmann said, “The draft notification outlines the similar transactions which were notified last year for section 10 (38). The notification proposes to exempt the bonafide off-market transactions from the condition of payment of STT at the time of purchase.”

Rajesh Gandhi, partner, Deloitte India, said that in most situations, grandfathering benefit will be available for the purpose of the new 10 per cent LTC tax even if the shares are not purchased on the stock market. In certain situations such as specified domestic investors acquiring shares of thinly-traded companies under preferential issue and category 3 FPIs, the grandfathering benefit will not be available if STT was not paid at the time of purchase, he added.

The Business Standard, New Delhi, 25th April 2018