Govt moves to check 'sham' deals in share market

To clamp down on tax evasion through "sham transactions" in stock market, the government on Wednesday proposed to provide exemption from long-term capital gains tax only if STT has been charged on purchase of shares and other "genuine cases" such as public offers.     

The measure, part of the Union Budget 2017-18, would be effective from April 1, 2018.     

It comes after noticing instances where existing exemptions from long-term capital gains tax have been misusedto declare unaccounted income.     

Currently, the income arising from a transfer of long-term capital asset, being equity share of a company or a unit of an equity oriented fund, is exempt from tax if the transaction of sale is undertaken on or after October 1, 2014and is chargeable to Securities Transaction Tax (STT). This provision is being misused by certain persons for declaring their unaccounted income as exempt long-term capital gains by entering into sham transactions, Finance MinisterArun Jaitley said while tabling the Union Budget in Lok Sabha.

With a view to prevent this abuse, Jaitley has proposed to amend the provision of the Income Tax Act "to provide that exemption under this section for income arising on transfer of equity share acquired or on after 1st day of October, 2004shall be available only if acquisition of share is chargeable to STT". However, to protect the exemption for genuine cases where the STT could not have been paid like acquisition of share inIPO, FPO, bonus or right issue by a listed company acquisition by non-resident, it has been proposed "to notify transfersfor which the condition of changeability to STT on acquisition would not be applicable".