Union Budget 2017: Didn't pay STT? pay capital tax

New Delhi: In attempt to curb tax evasion through sham transactions in stock market, the government on Wednesday proposed to exempt the sale of shares from long-term capital gains tax only if the saler had paid STT during the purchase.

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 misused to 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, 2014 and 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 minister Arun Jaitley said.

With a view to prevent this abuse, he 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, 2004 shall be available only if acquisition of share is chargeable to STT”. However, the exemption will be available for genuine cases where STT was not paid.