Long-term capital gains tax: Clarity awaited on transactions

In his Budget speech, Arun Jaitley said that the exemption for long-term capital gains tax on sale of equity shares will be available only if the corresponding purchases were chargeable to Securities Transaction Tax (STT) except as provided in law.An analysis by PwC said that long-term capital gains (LTCG) exemption is not available on shares purchased after October 1, 2004 if no securities transaction tax (STT) is paid at the time of acquisition. Currently, transfer of a long-term capital asset that is an equity share of a company is exempt from capital gains tax provided the transfer has been subject to STT.While the industry perceives the move as a partial relief, it is not yet clear as to what are the list of transactions that will be exempt. A separate circular on this aspect is expected.Girish Vanvari, Head of Tax, KPMG in India said that since there is no change in capital gains tax regime for listed stocks; it will be a big relief to the investors and could trigger an immediate rally on the stock markets. He also said that the clarification on non-applicability of indirect transfer rules to FPIs and AIFs will add to the market rally.At present, any capital gains that is received from shares that are held for more than a year is exempt from tax if an STT of 0.1 percent is paid at the time of selling them.The Finance Bill, 2017 proposes that in relation to equity shares acquired on or after October 1, 2004, exemption from capital gains on transfer will be available only where STT was paid at the time of acquisition also. A PwC analysis said notifications on exemptions regarding acquisition of shares in IPO, FPO, bonus or rights issue by a listed company, purchase by non-residents in accordance with FDI policy are expected.Abuse of tax provisions has been a concern of the government and all Budgetary provisions have been directed against this. The partial relief for long-term capital gains tax is also a measure in this direction.Revenue Secretary Hasmukh Adhia also clarified at a recent event that genuine transactions will not be covered under this proposal.