CA and CS HUB

No capital gains tax on share transfer via IPOs

By Deepshikha Sikarwar , ET Bureau
Experts say the clarification also does not address concerns of capital gains tax being levied on employee stock options or gifts in form of shares.

Genuine equity investments through initial public offers and bonus share issues won’t have to face long-term capital gains tax even if no securities transaction tax (STT) was paid on their transfers. The Central Board of Direct Taxes issued a draft notification to this effect on Monday, bringing relief to the investment community. 

It, however, failed to address a key concern related to off-market transactions in strategic purchases becoming taxable under the provision. Experts say the clarification also does not address concerns of capital gains tax being levied on employee stock options or gifts in the form of shares. The apex direct taxes body is seeking public comments on the notification clarifying the scope of a provision introduced in the budget this year to prevent tax abuse. 

The notification lists three types of transactions where the provision will apply, while sparing genuine ones. The first is investment in listed stocks that are not traded frequently and the acquisition of equity through preferential issues not falling under the Securities and Exchange Board of India (Sebi) issue of capital and disclosure norms. 

Second, those transactions where listed stock is not purchased over the exchange. Third, acquisition of shares in a company that's delisted and then listed again. 

Tax experts said the notification has addressed some concerns over the amendment related to section 10(38). But they pointed that the second clause poses risks to genuine investors. 

"This is an excellent notification by the government keeping in view the objective behind amendment to Section 10(38), which was to address cases of non-genuine, long-term capital gains being claimed as exempt from tax," said Sanjay Sanghvi, partner, Khaitan & Co. 

However, while the cases covered in the draft notification seek to address the issue of bogus and "non-genuine" cases, it should specifically exempt genuine instances such as private equity investments, employee stock options etc., Sanghvi said. 

In order to curb the practice of declaring unaccounted income as exempt from long-term capital gains by entering into sham transactions, the Finance Act, 2017 amended the provisions of Section 10 (38) of the Act. This meant exemptions under this section for income arising from the transfer of equity shares acquired on or after October 1, 2004, would only be available if the acquisition was chargeable to STT. 

However, to protect exemptions for genuine cases where STT could not have been paid, it was provided that the government would notify instances when the provision would not apply. These include share purchases inIPOs, bonus or rights issues by a listed company, stock purchases by non-resident Indians in accordance with the foreign direct investment (FDI) policy etc. 

But experts said that the second provision cited above may need another look. 

"This means that if an investor purchases shares of a listed company off market, he will not be able to claim capital gains tax exemption on sale of such shares even if the shares are sold on the stock market," said Rajesh Gandhi, partner, Deloitte Haskins & Sells LLP. 

He said this will have significant implications for all types of investors, specially private equity investors and strategic investors, which generally purchase a large quantity of listed company shares outside the stock exchange and could adversely impact the financial modeling and returns of such investors. 

"Allaying many concerns, as per the draft clarifications, most genuine transactions will continue to be exempt from tax, including mergers and demergers, gifts, etc.," said Abhishek Goenka, leader, direct taxes, PwC. "The category related to purchases off the stock exchange is too wide and could cover several genuine cases." 

However, a senior CBDT official told ET that genuine transactions won’t be taxed. "Genuine transactions like esops, bonus issues etc will not be touched," the official said.

Source: ET wealth

Paperwork required to handle TDS on sale of property

TDS deduction mandatory

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It is mandatory for buyers of immovable property to deduct TDS from the amount to be paid to the seller. The buyer is required to deduct TDS @ 1% on the total consideration and deposit the same in the account of the income tax authorities in the prescribed format. Here's the low-down:

Form

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The buyer needs to fill out form 26QB either online or offline to deposit the TDS. One can click the following link to access the form online. https://onlineservices.tin.egov-nsdl.com/etaxnew/tdsnontds.jsp

Due date for filing

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Form 26QB is required to be filed within 7 days from the month in which the TDS was deducted by the buyer.

Details

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Information with respect to the buyer and seller (name, address, PAN, status), details of the property, consideration and TDS payable must be entered in the form.

Payment

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One can choose to pay either through Netbanking or at the branch of the bank. If the taxpayer chooses e-tax payment on subsequent date at the bank branch, an acknowledgement number is generated. This number must be retained by the taxpayer to be presented to the bank while making the payment.

Process

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After the form is filed and payment made to the income tax authorities, approved form 26QB or form 16B can be downloaded by logging into TRACES as a tax payer. Form 16B must be provided by the buyer to the seller as a proof of deposit of TDS.

Important points to note

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1. Dealings in agricultural land are excluded from the requirements of these provisions.

2. If the consideration is being paid in installments, TDS must also be deducted on each installment.

3. If PAN is not provided by the seller, TDS @ 20% is deductible.

Source : economicstimes.com

RBI clears proposal to introduce Rs200 notes

RBI is likely to start the process of printing the new Rs200 notes after June, only after the government officially approves this new denomination, says an official

Gopika Gopakumar

RBI has already introduced new Rs2,000 and Rs500 banknotes. Photo: AP

The board of the Reserve Bank of India (RBI) has cleared a proposal to introduce banknotes of Rs200 denomination, two people aware of the development said.

The decision was taken at the RBI board meeting in March, these people said. They didn’t want to be identified as they aren’t authorized to speak to the media.

The process of printing the new Rs200 notes is likely to begin after June, once the government officially approves this new denomination, said one of the two people cited earlier.

An RBI spokesperson declined to comment.

The move to introduce lower denomination notes comes against the backdrop of the government’s move to rework the currency mix.

On 8 November, it announced the withdrawal of Rs500 and Rs1,000 currency notes, amounting to around 86% of currency in circulation of Rs17.9 trillion.

Since then, RBI has replaced these with the new Rs2,000 and redesigned Rs500 bank notes. As on 24 March, currency in circulation was Rs13.12 trillion, still around 27% off pre-demonetization levels. The government is encouraging digital payments and may not increase currency in circulation to the pre-demonetization level.

On 13 March, RBI lifted all cash withdrawal caps. ATM operators, however, say that there is a paucity of lower denomination banknotes.

So far, the central bank has not revealed how many of the old currency notes it has got back from the public. The window for Indians who were out of the country between 8 November and 30 December ended on Friday.

The RBI board has 14 members. Apart from governor Urjit Patel and four deputy governors, the board also has economic affairs secretary Shaktikanta Das and financial services secretary Anjuly Chib Duggal.

Source livemint

CBDT proposes norms for tax benefits for genuine equity deals

In order to protect genuine transactions, the CBDT came out with a draft notification specifying certain eligible transactions for tax exemption on which STT was not paid

PTI

Equity deals that will be exempt from tax would include transaction through preferential issues for shares which are not frequently traded, share transactions which are not affected through recognised stock exchanges, and also in cases where the company has been delisted. Photo: iStock

New Delhi: To check tax evasion through “sham transactions” in stock market and protect genuine ones, the tax department on Monday proposed to exempt specified deals from long-term capital gains tax in cases where securities transaction tax (STT) was not paid.

As per the Finance Act, 2017, the income arising by way of a transfer of long-term capital asset, being equity share in a company, will be exempt from tax if such transfer is undertaken after 1 October 2004 and chargeable to STT.

However, in order to protect genuine transactions, the Central Board of Direct Taxes (CBDT) on Monday came out with a draft notification specifying certain eligible transactions for tax exemption on which STT was not paid.

These would include, transaction through preferential issues for shares which are not frequently traded, share transactions which are not affected through recognised stock exchanges, and also in cases where the company has been delisted.

The CBDT has invited comments from stakeholders on the draft notification by 11 April.

The proposed measure is 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, CBDT said in a release.

Source livemint

Tax department proposes to ease anti-abuse clause in finance bill

Tax department clarified that a budget proposal to levy capital gains tax on all equity share sales where securities transaction tax has not been paid would apply in three cases

Gireesh Chandra PrasadRemya Nair

While tax experts welcomed the move in general, they fear that one of the three specified instances could hit M&As.

The tax department has proposed to soften an anti-abuse provision in Finance Bill 2017 meant to check money laundering by limiting its scope to only three specified instances of abuse.

A draft notification issued by the department on Monday clarified that a budget proposal to levy long-term capital gains tax (LTCG) on all equity share sales where securities transaction tax (STT) has not been paid would be applicable only in three cases.

These are: sale of listed equity shares in a company done outside a recognized stock exchange; acquisition of listed equities that are not very frequently traded on the stock exchanges through a preferential issue except in cases of court-approved mergers and cases of rehabilitation and debt restructuring; and the acquisition of equity shares in a company that is de-listed.

The proposal gives relief to investors acquiring shares in initial and follow-on public offers and non-residents participating in bonus or rights issues of a listed company, where securities transaction tax is not paid.

While tax experts welcomed the move in general, they fear that one of the three specified instances—sale of listed equity shares in a company done outside a recognized stock exchange—could hit mergers and acquisitions (M&As).

M&As are often done off-market to avoid influencing share prices and could attract capital gains tax as per the draft notification, according to Amit Maheshwari, partner, Ashok Maheshwary and Associates LLP.

The tax department will receive feedback on the draft till 11 April.

Ravi Mehta, partner, Grant Thornton India LLP, said, “On a literal reading, it could encompass both primary as well as secondary transactions, including genuine transactions such as purchase of shares under employee stock options, fresh fund-raising by listed companies from promoters or financial investors during down-turn and genuine off-market purchases such as share acquisition where price also includes control premium.”

In many cases, income tax would have been properly paid by sellers and, hence, there would be no effective revenue loss to the exchequer, added Mehta.

“This (provision) would dissuade acquirers to purchase shares of listed companies through a private transaction/off market. There have been several instances where some of the large acquisition transactions, including by private equity investors, have been undertaken off-market purely for commercial reasons,” said Anil Talreja, Partner, Deloitte Haskins and Sells LLP.

Still, the draft is conceptually appropriate and some of the issues with it should ideally be sorted out in the final notification, said Pranav Sayta, tax partner, EY India.

The anti-abuse provision was introduced in the budget this year after the Supreme Court-appointed special investigation team on black money highlighted the use of penny stocks in money laundering by inflating their price through market manipulation.

Source livemint