Capital Gains Exemption Only For Core Sector Primary Flotations

The long-term capital gains exemption extended to companies under section 54EA of the Income Tax Act will be restricted to investments in the primary issues of companies operating in infrastructure sectors.

Infrastructure sectors are those identified under section 80I-A of the Income Tax Act. The government has extended the benefits also to power, basic telephone services and exploration/extraction of oil and natural gas.

This will form part of the guidelines to be issued by the finance ministry soon, said a top official.

Infrastructure sectors defined under section 80I-A are roads, highways, bridges, airports, rail systems, water supply, irrigation, sanitation and sewerage works.

The ministry had (through a December 20 notification) restricted this concession to bonds issued by Hudco which are redeemable after three years and units issued by a mutual fund repurchasable after a period of three years.

However, it subsequently moved an ordinance on December 31 extending the benefit even to shares floated by public limited companies in the infrastructure sector.

As per the provision of 54EA of the Income Tax Act, any investor incurring capital gains can circumvent it by investing 60 per cent of the net earnings in the specified instruments