Final notification specifying cases where non-payment of STT on acquisition of equity shares would result in withdrawal of LTCG@10%
The Finance Act, 2018 has withdrawn the benefits allowed to a taxpayer under section 10(38) on transfer of capital asset being an equity shares in a company listed on a recognized stock exchange in India (‘RSE’) or unit of an equity oriented mutual fund or a unit of a business trust and has introduced new section 112A which provides that long term capital gains on these capital assets shall be taxed @10% exceeding Rs. 1 lakhs.
In order to provide for certain cases where payment of STT could not have been possible, section 112A(4) empowers Central government to specify by way of notification of cases where payment of STT shall not apply in case of acquisition of equity share in a company.
In this regard, CBDT issued press release and draft notification dated 24 April 2018 specifying the cases where payment of STT wild not apply.
In consequence of above, CBDT has come up with the final rules via notification dated 1 October 2018 notifying all the cases where acquisition is made either before 1 October 2004 or after 1 October 2004 which are not chargeable to STT and on which benefit of tax@10% on Long term Capital Gains will be available except with respect to the cases below, where non-payment of STT at the time of purchase would result in payment of LTCG @20%:
- Acquisition of existing listed equity shares of company whose equity shares are not frequently traded on a RSE (recognised stock exchange of India) made through a preferential issue.
However, if acquisitions is made by preferential issue not falling under the provisions of chapter VII of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009, such acquisition will be eligible for benefit @10% even if STT is not paid.
- Acquisition of existing listed equity share which is not entered through a RSE.
However, following acquisitions made in accordance with the provisions of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) shall remain exempt from payment of STT:
- where acquisition is made under issue by a company other than through preferential issue;
- acquisition by scheduled banks, reconstruction or securitisation companies or public financial institutions in their ordinary course of business;
- under employee stock option scheme (ESOP) or employee stock purchase scheme (ESPS) framed as per SEBI (ESOS and ESPS) Guidelines,1999;
- in accordance with SEBI Takeover Regulation;
- from the Government;
- by mode of transfer which are exempt under section 47 of ITA or acquisition made under slump sale of business u/s 50B or by way of contribution of asset into firm (section 45(3) of ITA) or transfer on dissolution (section 45(4) of ITA), provided the previous owner has not acquired it by any of modes in clause (a) or (b) or (c) [other than the transactions referred to in the proviso to clause (a) or clause (b)].
- Acquisition of equity share of a company during the period from the date on which the company is delisted from a RSE and immediately preceding the date on which the company is again listed on RSE in accordance with SCRA, 1956 read with SEBI, 1992 and the rules made thereunder.
Also, any acquisition made falling under clauses (a) and (b) above shall be exempt from payment of STT if it falls under any of the following cases:
- approved by SC, HC, NCLT, SEBI or RBI in this behalf;
- by any Non-resident as per FDI guidelines issued by the Indian government;
- by an Investment Fund referred under clause (a) of Explanation 1 to section 115UB of ITA;
- by a venture capital fund under section 10(23FB) of ITA of the Income-tax Act;
- a Qualified Institutional Buyer;
In case of any clarification(s), please raise a query under IT Advisory tab in your personal dashboard post login or contact us at info@taxtellers.com or +91-74040 56789.
Our Office: B-6 Shakti nagar Extension, Near Laxmi Bai College Delhi - 110052
