Capital Gains Tax: Latest Developments in India

IAS Prelims 2023

The Central Board of Direct Taxes (CBDT) has come out with a final notification specifying the securities transactions that would attract capital gains tax where the securities transaction tax (STT) hasn’t been paid.

An amendment has been made in the Finance Act 2017 to curb the declaration of unaccounted income as exempt long-term capital gains under the previous provisions of the Income Tax Act by entering into fake transactions.

The amendment notification specifies the transactions on which the tax would apply and and those on which tax would be exempt.

According to the notification, the chargeability to STT provision will not apply to all transactions of acquisitions of equity shares entered into on or after October 1, 2004, except the acquisition of listed shares in a preferential issue of a company whose shares are not frequently traded in a recognised stock exchange, the acquisition of existing listed equity shares in a company not through a recognised stock exchange of India, and the acquisition of shares of a company while it is de-listed.

Capital Gains Tax – CGT

Capital gains is the profit that the investor realizes when he sells the capital asset for a price higher than its purchase price. The transfer of capital asset must be made in the previous year. This is taxable under the head ‘Capital Gains’ and there must exist a capital asset, transfer of the capital asset and profit or gains arising from the transfer.

Capital Gains include any property held by the assesse except the following:

-Stock in trade.
-Consumable stores or raw materials held for the purpose of business or profession.
-Personal effects that are movable except jewellery, archaeological collections, drawings, paintings, sculptures or any art work held for personal use.
-Agricultural land. The land must not be located within 8kms from a municipality, Municipal Corporation, notified area committee, town committee or a cantonment board with a minimum population of 10,000.
-6.5 percent Gold Bonds, National Defence Gold Bonds and Special Bearer Bonds.
-Gold Deposit bonds under Gold Deposit Scheme.

Capital gains tax is a tax that is charged on the profits that he has made by selling his capital asset. For making it easy for taxation, the capital assets are classified to ‘Short-Term Capital Asset; and ‘Long-Term Capital Asset’.

Short-Term Capital Asset: If the shares and securities are held by the taxpayer for a period not more than 36 months preceding the date of its transfer will be treated as a short-term capital asset.

Long- Term Capital Asset: If the taxpayer holds the shares and securities for a period exceeding 36 months before the transfer will be treated as a long-term capital asset.

Equity shares which are listed in a recognised stock exchange, units of equity oriented mutual funds, listed debentures and Government securities, units of UTI and Zero Coupon Bonds’ period of holding will be considered for 12 months instead of 36 months.

Transfer is giving up your right on an asset it includes sale, exchange, compulsory acquisition under any law and relinquishment.