Allaying investor fears over levy of long-term capital gains tax, the government will come out with an exhaustive list of transactions on which the anti-abuse provision of levying long-term capital gains tax on share transfer in unlisted companies will not be applicable. Finance Minister Arun Jaitley in his Budget for 2017-18, had proposed 10% long-term capital gains tax on those who acquired shares in unlisted companies after October 1, 2004, if they had not paid securities transaction tax (STT) at the time of purchase.
The Central Board of Direct Taxes (CBDT) Chairman Sushil Chandra has said that the provision was introduced in Budget 2017-18 to plug bogus long-term capital gains being availed by investment in penny stocks and put an end to sham transactions. He added that they are taking information from all stakeholders and they will give a very exhaustive list as to where Section 10(38) will not be applicable. He said that it is anti-abuse law which they have brought in and it will be used where the law is abused.
Chandra also said that genuine investors in IPO or those which have come in through FDI need not worry as there will be no change in policy with regard to capital gains. He also said that they will come out with clarification as to what kind of share transactions will be put under this provision, so that there is no harassment. Chandra added that their purpose is everyone should be tax compliant.
As per the tax department, the route of long-term capital gains in unlisted shares was being misused in the last 2-3 years and estimated that 'bogus' gains availed by 'khoka' (shell) companies last year were Rs 80,000 crore. Chandra said out of 15 lakh companies incorporated under Ministry of Corporate Affairs, only 6 lakh companies file Income Tax returns. Out of that 2.5 lakh companies show losses or zero income and 2.85 lakh companies disclose income less than Rs 1 crore. While only 36,500 companies file income tax return showing income over Rs 1 crore.