LTCG tax relief coming? Proposal listed on when STT need not be paid

The Finance Ministry on Tuesday proposed relaxing certain conditions for availing the concessional 10 per cent long term capital gains tax.  Listing out scenarios wherein individuals need not pay Securities Transaction Tax (STT) at the time of purchase to avail the concessional tax rate, the Finance Ministry invited stakeholder comments on the draft notification by April 30.

In the 2018-19 budget, the government had after a gap of 14 years reintroduced 10 per cent tax on long-term capital gains exceeding Rs 1 lakh from sale of shares.

Till March 2018, however, the long term capital gains (LTCG) tax was nil for shares sold after a year of purchase. 

LTCG on sale of unlisted shares is taxed at 20 per cent, while in case of short term capital gains it is 30 per cent.

"To provide the applicability of the tax regime under Section 112A of the I-T Act to genuine cases where the STT could not have been paid, it has also been provided in sub-section (4) of Section 112A of the Act that the Central  Government may specify, by notification, the nature of acquisitions in respect of which the requirement of payment of STT shall not apply in the case of acquisition of equity share in a company," a Finance Ministry statement said.

In the draft notification, the Central Board of Direct Taxes (CBDT) has specified the nature of acquisitions in respect of which requirement of payment of STT would not apply for availing the concessional rate of LTCG.

Finance Act 2018 provided for long term capital gain tax on transfer of specified securities only if STT has been paid on acquisition and transfer of such capital asset. It also authorised the Central government to notify genuine cases where such payment of STT could not be done.

"The Government had exempted certain modes of acquisition of equity shares from the condition of payment of STT at the time of acquisition in order to be eligible for 10 per cent LTCG regime. There can be various genuine cases where STT could not have been paid," EY India, Partner and Business Tax Services Leader Garima Pande said.

PwC Leader, Corporate and International Tax, Abhishek Goenka said the draft notification has been issued in the context of those transactions where STT is not paid at the time of acquisition and/or sale of the securities. 

"It covers the same scenarios as were notified in 2017 in the context of shares acquired after 2004. To that extent, the draft is on expected lines and covers most genuine transactions. However, the many concerns that arise as a result of the language of the section itself remain unaddressed," Goenka said.

Nangia & Co Managing Partner Rakesh Nangia said the government introduced a new Section 112A in the Income Tax Act, proposing to levy income tax at concessional rate of 10 per cent on long term capital gains arising from above-mentioned securities, if STT is paid both at the time of transfer in case of units of equity oriented mutual funds and both at the time of acquisition and sale in case of listed equity shares.