Capital gains tax: Govt to protect genuine investors

In an attempt to protect genuine investments, the government plans to issue an “exhaustive list“ of transactions on which the “antiabuse“ provision of levying long-term capital gains tax on share transfer in unlisted companies will not apply .

“We are taking information from all stakeholders and we will give a very exhaustive list where Section 10(38) will not be applicable. It is absolutely an anti-abuse law which we have brought in and it will be used where law is abused,“ Central Board of Direct Taxes (CBDT) chairman Sushil Chandra said at a post Budget meeting with industry representatives.

He said genuine investors in IPO or those that come via FDI need not worry as there will be no change in policy on capital gains. “We will come out with clarification as to what kind of share transactions will be put (under this provision) so that there is no harassment,“ he said.

The CBDT chief reiterated that the provision was introduced to plug bogus long-term capital gains being availed of by investment in penny stocks and put an end to “sham transactions“. On Saturday , Chandra had estimated that the bogus claims added up to almost Rs 80,000 crore. In the Budget, finance minister Arun Jaitley 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 tax department has found that the route of long term capital gains in unlisted shares was being misused over the last two-to-three years. Chandra said out of 15 lakh companies incorporated, only 6 lakh companies file income tax returns. Of these, 2.5 lakh companies show losses or zero income and 2.85 lakh companies disclose income less than Rs 1 crore. Only Rs 36,500 companies file income tax returns, showing income over Rs 1crore.