Introduction :
Introduction Gain arising on transfer of
capital asset is charged to tax under the head “Capital Gains”. Income from
capital gains is classified as “Short Term Capital Gains” and “Long Term
Capital Gains”
Meaning of Capital Asset :
Capital asset is defined to include:
(a) Any kind of property held by an
assessee, whether or not connected with business or profession of the assesse.
(b) Any securities held by a FII which
has invested in such securities in accordance with the regulations made under
the SEBI Act, 1992. However, the following items are excluded from the
definition of “capital asset”:
(i) any stock-in-trade (other than
securities referred to in (b) above), consumable stores or raw materials held
for the purposes of his business or profession ;
(ii) personal effects, that is, movable
property (including wearing apparel and furniture) held for personal use by the
taxpayer or any member of his family dependent on him, but excludes—
(a) jewellery;
(b) archaeological collections;
(c) drawings;
(d) paintings;
(e) sculptures; or
(f) any work of art.
As we all know that the 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. Many judgements of various court were also pronounced in
favour of assessee on account of long term capital gain on penny stocks.
With a view to prevent this abuse,
the Government has come up with New Regime of Taxation of Long Term Capital Gains on sale of equity share,
unit of equity oriented funds and unit of the business trust u/s 112A of the
Income Tax Act, 1961 with effect from 01.04.2018
The Finance Act,
2018 has withdrawn the exemption under section 10(38) of
the Income-tax Act, 1961 and has introduced a new section 112A in order to levy
long term capital gain tax on the transfer of a long term capital asset being
an equity share in a company or a unit of an equity oriented funds or unit of a
business trust w.e.f A.Y 2019-20 and onwards.
The main object behind the
introduction of new section 112A, as explained by the Government is that
the exemption from long-term capital gain tax on transfer of equity share or
unit of equity oriented fund or units of business trust has led to significant
erosion in the tax base resulting in loss of revenue and due to abusive use of
tax arbitrage opportunities created because of the said exemption.
Before Insertion of Section 112A
Before F.Y 2018-2019, long-term
capital gain on transfer of equity share, unit of equity oriented fund and unit
of business trust was exempt as per the provisions of section 10(38) of the
Income Tax Act, 1961.
After Insertion of Section 112A
·
With effect from 1st April, 2018 i.e
from F.Y 2018-19, provisions of section 10(38) will not be applicable to any
income arising from transfer of equity share, unit of a equity oriented fund or
units of business trust.
·
From 1st April, 2018 i.e from A.Y
2019-20, provisions of section 112A shall be applicable to tax income arising
from transfer of a long term capital asset in the nature of an equity share in
a company, unit of equity oriented fund and unit of business trust.
·
Section 112A shall be applicable only
in case where Securities Transaction Tax (STT) has been paid at the time of
transfer. Further, in case of equity share in a company sec 112A shall be
applicable where STT has been paid both at the time of acquisition and transfer
of equity shares.
Rate of Tax
u/s 112A
As per the provisions of sub section
(2) of section 112A, long-term capital gain tax @10% (plus applicable surcharge
and cess) shall be levied on the amount of capital gains exceeding one lakh
rupees.
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