|QUERY:||What shall be the tax implications (LTCG), on sale of shares:
a) Purchased / acquired by gift / allotment / purchase before October 1, 2004 where no STT was paid (it was not through a stock exchange).
b) Acquired before October 1, 2004 by purchase through broker from recognized stock exchange. No STT was paid.
c) Shares acquired after October 1, 2004 through off market purchase or gift but no STT was paid.
d) Purchase / acquisition before October 1, 2004 through IPO’s / FPOs/ Bonus issue / Right issue by company are eligible for exemption u/s. 10(38) though no STT was paid as there was no share transaction). Sale of shares shall invite LTCG after availing indexation benefit.
|ANSWER:||Section 10 of the Income-tax Act, 1961 provides that:
“In computing the total income of previous year of any person, any income falling within any of the following clauses shall not included:
(38) any income arising from the transfer of a long term capital asset being an equity share in a company or a unit of an equity oriented fund or a unit of business trust where:
a) the transaction of sale of such equity share or a unit is entered into on or after the date on which chapter VII of the Finance (No. 2) Act, 2004 comes into force, and
b) such transaction is chargeable to securities transaction tax under that chapter’
Provided that the income by way of long term capital gain of a company shall be taken into account in computing the book profits and income tax payable under section 115JB;
Provided also that nothing contained in sub-clause (b) shall apply to a transaction undertaken on a recognised stock exchange located in any International Financial Service Centre and where the consideration for such transaction is paid or payable in foreign currency.
Provided also that nothing contained in this clause shall apply to any income arising from the transfer of long term capital assets, being an equity share in a company, if the transaction of acquisition other than the acquisition notified by the Central Government in this behalf, of such equity share is entered into on or after 1st day of October, 2004 and such transaction is not chargeable to security transaction tax under chapter VII of the Finance (No. 2) Act, 2004.”
Thus, section 10(38) exempts any long term capital gains from income tax where securities transaction tax is chargeable under chapter VII of the Finance (No. 2) Act, 2004. Section 98 of the Finance (No. 2) Act, 2004 provides for charging of securities transaction tax on sale of an equity share in a company or a unit of an equity oriented fund or a unit of business trust, where the transaction of such sale is entered into a recognised stock exchange.
So in queries (a) and (b) purchased / acquired before October 1, 2004, the transaction would be chargeable as LTCG @ 20%. In case of query (c) purchased before October 1, 2004 off market where no STT was paid would also be chargeable as LTCG @ 20%. In case of query (d) from the facts, it is liable as LTCG @ 20%. However, as per explanatory memorandum, it has been indicated that purchase through IPO, FPO bonus or right issue by a listed company, acquisition by non-resident as per FDI policy etc., may be exempt, which means others are liable to tax.
|EXPERT:||CA. H. N. Motiwalla|
|CATCH WORDS:||Capital gains-Long Term Capital Gains on sale of shares etc.|
Opinion Of Eminent Legal Luminaries On Controversial Issues
Capital gains-Long Term Capital Gains on sale of shares etc.
Credit: Several of the queries and answers are reproduced with permission from the AIFTP Journal. We thank AIFTP for generously allowing us to host their research material.
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