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CBDT issues draft notification to provide Sec. 112A relief to off-market acquisitions
The Finance Act, 2018 has withdrawn the exemption under section10(38) of the Income-tax Act, 1961 and has introduced a new section 112A which provides that long-term capital gains (LTCG) arising from transfer of a long-termcapital asset, being an equity share in a company or a unit of an equity oriented fundor a unit of a business trust, shall be taxed at 10% of such capital gains exceeding Rs. 1 lakh. The provision is applicable with effect from Assessment Year 2019-20.
Section 112A provides that the concessional rate of 10% shall be availableif Securities Transaction Tax (STT)is paid both on acquisition and transfer of long-term capital asset, being listed equity shares. Therefore, in case STT is not paid at the time of acquisition of equity shares, the resultant long-term capital gains arising from its sale shall be governed by section 112 and not by Section 112A.
However, there are certain genuine off-market transactions which cannot be subject to STT at the time of acquisition. Therefore, in such scenario Section 112A(4) provides that the Central Govt. may notify the nature of acquisitions in respect of which the payment of STT at the time of acquisition shall not apply. Accordingly, CBDT has issued a draft notification under section 112A.
The draft notification includesa negative list, in respect of which payment of STT would not apply for availing of the concessional rate of LTCG tax.The draft notification is similar to CBDT’snotification no. 1789(E) dated 05-06-2017 which was issuedto deal with the similar situation in case of exemption for long-term capital gainsunder section 10(38).
The exemption from payment of STT has been given for the following off-market transactions:
1. Acquisition approved by the Supreme Court, High Court, National Company Law Tribunal, SEBI or RBI.
2. Acquisition by any non-resident in accordance with FDI guidelines.
3. Acquisition by an investment fund [as referred to in sec. 115UB].
4. Acquisition through preferential issue to which Chapter VII of the SEBI (Issue of Capital and Disclosure) Regulations does not apply.
5. Acquisition through an issue of share by a company.
6. Acquisition by scheduled banks, reconstruction or securitisation companies or public financial institutions during their ordinary course of business.
7. Acquisition under ESOP.
8. Acquisition under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 2011
9. Acquisition from the Government.
10. Acquisition by mode of transfer (as per section 47/50B) if previous owner has acquired shares by any of the modes given in this list.
11. Acquisition by an investment fund referred to in clause (a) of the Explanation 1 to section 115UB or a venture capital fund referred to in section 10(23BF) or a Qualified Institutional Buyer.
It is further provided that the acquisition of shares in the following circumstances shall not be subject to taxability under Section 112A:
1. Acquisition of listed equity share of a companythrough a preferential issue ifits shares are not frequently traded in a recognised stock exchange of India.
2. Acquisition of existing listed equity share in acompany not through a recognised stock exchange.
3. Acquisition of equity share of a company during the period when company is delisted on a recognised stock exchange.