The Finance Ministry has tweaked the rules relating to long term capital gains tax to make it harder for high net worth individuals who launder black money through fake long term capital gains.
At present, gains on equity investments held for more than a year are not subject to capital gains tax.
From April 1, 2018, only those investments in equities will be eligible for long term capital gains, where securities transaction tax (STT) has been paid. In other words, only shares bought through the stock exchange platform will be eligible for long term capital gains tax.
However, shares acquired in initial public offerings, follow-on public offerings, bonus issue, rights issue and FDI route, where the shares are directly credited to the investors’ demat accounts will be exempt from this rule.
“It has been noticed that exemption provided under section 10(38) is being misused by certain persons for declaring their unaccounted income as exempt long-term capital gains by entering into sham transactions,” the Budget memorandum says.
“With a view to prevent this abuse, it is proposed to amend section 10(38) to provide that exemption under this section for income arising ng on transfer of equity share acquired or on after 1st day of October, 2004 shall be available only if the acquisition of share is chargeable to Securities Transactions Tax,” the memorandum says.
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