Pravin Saraswat, FCA, CS, DISA
In order to curb the practice of declaring unaccounted income as exempt long term capital gain by entering into sham transactions, the Finance Act, 2017 amended the provisions of section 10 (38) of the Act to provide that exemption under this section for income arising on transfer of equity share acquired on or after 1st day of October, 2004 shall be available only if the acquisition of share is chargeable to STT. However, to protect the exemption for genuine cases where the STT could not have been paid like acquisition of share in IPO, FPO, bonus or rights issue by a listed company acquisition by non -resident in accordance with FDI policy of the Government etc, it was also provided that the Central Government shall notify the acquisition for which the condition of chargeability to STT shall not apply.
Now Govt. proposes to deny benefit of long term capital capital u/s 10(38) for following investors only as per the Press Release dated 03/04/2017 by CBDT:
i) The first is investment in listed stocks that are not traded frequently and the acquisition of equity through preferential issues not falling under Sebi issue of capital and disclosure norms.
ii) Second, those transactions where listed stock is not purchased over the exchange.
iii) Third, acquisition of shares in a company that’s delisted and then listed again.
The proposed notification has come as a major relief to the promoters of newly listed companies, start-up companies and other genuine business transactions who were likely to be hit hard in absence of the notification. After this notification, IPO/FPO allottees, Bonus allottees, entrepreneurs/ promoters of listed companies, can take a breath of relief
(The author is a Jaipur based practicing Chartered Accountant and can be reached on 09829063908, firstname.lastname@example.org)