I-T uncovers Rs 4,000-crore tax evasion through LTCG route: Sources

The investigation wing of the Income Tax Department Mumbai has unearthed tax evasion to the tune of Rs 4000 crore carried out through the long term capital gain route.

“We have found beneficiaries of 12 companies listed on NSE and BSE which evaded tax through the LTCG route,” a source close to the tax department told Moneycontrol.

The agency, which has been pursuing this case for several months now, has started a probe into the 12 companies, which belong to sectors such as consumer, entertainment, infrastructure, steel and finance.

The LTCG route was a common method to evade taxes till the government altered the structure in Budget 2018 to plug the loophole by extending the minimum holding period of equity shares from one year to three years. The cases of evasion date back to before the period the new LTCG structure was brought in.

The modus operandi for evading taxes through the LTCG route was this: entities who specialise in manipulating share prices get in touch with investors who need to show fake capital gains or losses. The investor buys shares rigged by the entity, which are then moved in the favoured direction to produce a capital gain or losses. One leg of the transaction -- the share purchase -- takes place on the exchange while the other leg -- the gains or losses after the exit – is settled in cash.

This is not the first time the tax department has cracked down on tax evasion through this method.

Previously, it had uncovered tax evasion to the tune of Rs 38,000 crore, involving about 64,000 entities.

Establishing guilt in the matter has proved difficult for investigating agencies because of the cash nature of the second leg of the transaction outlined above. In many cases -- including the Rs 38,000-crore evasion case -- SEBI has passed an interim order banning the entities but could not follow up with a confirmatory order.​