Capital gains tax only on sham transactions - CBDT
What's the story
An "exhaustive list" of transactions will be exempted from the proposed 10 per cent long-term capital gains tax on investors in unlisted companies, Central Board of Direct Taxes (CBDT) Chairman Sushil Chandra said today. In the Budget speech, Finance Minister Arun Jaitley proposed this tax on investors of unlisted company who had not paid the Securities Transaction Tax (STT) at the time of purchase.
Definition
What is Securities Transaction Tax (STT)?
An investor pays STT on the total value paid or received in a share transaction. All capital gains from shares held for more than a year are fully exempted from tax if STT was paid at source.
Investments
Protection for genuine investors
Government will reveal a list of transactions that will be exempted from the new tax announced by the FM. Genuine investors need not worry as there will be no change in policy with regard to capital gains. Investors through FDI method will also be protected. Chandra said Jaitley's announcement was important to end "sham transactions" and bogus gains availed by investment in penny stocks.
Background
Why was the new tax law announced?
Bogus gains availed by 'khoka' (shell) companies last year amounted to Rs.80,000 crore. Chandra said only 6 out of 15 lakh companies file Income Tax returns. 2.5 lakh companies declared zero income or losses, 2.85 lakh companies disclosed income less than Rs. 1 crore. Only 36,500 companies filed ITR showing income over Rs.1 crore. The tax has been announced to counter these bogus gains.