IT Department announces new rules for capital gains tax exemption

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rules for capital gains tax exemption

The income tax department has announced new rules for capital gain tax. The notification says that capital gains tax will be issued on equity transactions if securities transaction tax (STT) was not paid on them.

The income tax department said that employee stock option, foreign direct investment and off-market transactions that are recognised by RBI, Sebi, a high court or Supreme Court and NCLAT will be exempt from capital gains tax, even without paying security transaction tax.

By notifying a rule introduced in the budget this year, the Central Board of Direct Taxes (CBDT) has provided imposition of capital gain tax on acquisition of listed shares in off market transactions in case STT is not paid.  It is a big relief to genuine investments.

The move is seen as an effort to curb the practice of declaring unaccounted income as exempt long-term capital gain through sham transactions.

In the budget, it was said that in order to prevent this abuse there is a proposal to amend section 10(38) to provide that exemption under this section for income arising on transfer of equity share acquired or on after 1st day of October, 2004 shall be available only if the acquisition of share is charged with Securities Transactions Tax under Chapter VII of the Finance (No 2) Act, 2004.

In a statement the Finance Ministry said that exceptions has also been provided to safeguard the interest of genuine investors.

As per the notifications issued by CBDT the changes will be effective from April 1, 2018, and will be applicable to assessment year 2018-19 and assessment years to follow.

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