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India Inc has sought exemptions and more clarity on the government's proposal to levy capital gains tax on shares acquired through non-payment of securities transaction tax (STT).
According to sources, the Central Board of Direct Taxes (CBDT) has received over a dozen recommendations for widening of the 'negative list' proposed in the draft notification.
Earlier this month, the CBDT had proposed only three scenarios in which capital gains tax will be levied. However, one of the conditions, that listed shares not purchased from stock exchanges would be liable for tax, has created confusion among market players.
Inter-se promoters' transfer among group entities; direct allotment of shares such as qualified institutional placement; acquisition of shares by conversion of a debenture or loan and acquisition of shares through gifts are some of the transactions that industry players have CBDT to exclude from the new tax proposal.
"We have received exhaustive list from various participants, we would come up with final notification shortly," said a CBDT official.
The CBDT had sought stakeholders' comments by April 11 on the draft proposal. Currently, the tax authority is analysing all the feedback and is expected to issue the final notification early next month.
Experts said transfers made to family trusts, in a majority of the cases, were part of an inheritance plan and the shares received are not a consideration but an obligation to safeguard the assets and pass it on to the end-beneficiaries. Such transactions need to be kept out of the purview of the amendment, they said.
"It is important that the government makes it clear that any inter se promoter transfers will continue to qualify for the exemption, in order to remove any ambiguity that could arise especially under clause (b) of the draft notification," said Pranav Sayta, partner, EY.
Experts said taxing share transfers within promoter groups would not curb the practice of declaring unaccounted income as exempted long-term capital gains by entering into sham transactions.
Further, industry players also asked tax authorities to explicitly clarify the clause related to share purchase by employees under employees stock options (esops). According to them, shares allotted to employees are genuine transactions are through formal schemes framed by the companies and are being recorded in the books of accounts. "This aspect of draft is ambiguous and could attract litigation," said Sanjay Sanghvi, partner, Khaitan & Co.
"Any acquisition (although not on the stock exchange through payment of STT) of shares (whether before or after listing) by an entity which is part of the promoter group, including under or by way of subscription/allotment, purchase, gift, inheritance, restructuring should be included within the purview of the notification so as to ensure that the capital gains tax exemption is not denied to such genuine cases, especially given the intent and purpose of the present amendment," added Sayta.
