Income from unlisted share sale to be taxed as capital gain

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New Delhi | Updated: May 3, 2016 6:03:35 PM

Income from sale of unlisted shares would be treated as capital gains and taxed at a lower rate than business income to have a uniform approach and avoid litigations, the Income Tax department has said.

Income from sale of unlisted shares would be treated as capital gains and taxed at a lower rate than business income to have a uniform approach and avoid litigations, the Income Tax department has said.

“It has been decided that the income arising from transfer of unlisted shares would be considered under the head ‘capital gain’ irrespective of period of holding, with a view to avoid disputes/litigation and to maintain uniform approach,” CBDT said in a notification.

Central Board of Direct Taxes said that for determining the tax treatment of income arising from transfer of unlisted shares for which no formal market exists for trading, a need was felt to have a consistent view in assessments pertaining to such income.

Capital gain on sale of unlisted securities attract a long term capital gain tax at the rate of 20 per cent with indexation benefit. Business income, on the other hand, is taxable on slab rate which can be as high as 30 per cent, that too without indexation.

Capital Gain on sale of unlisted securities which qualify as short term is taxable at 15 per cent.

According to experts, assessees will clearly benefit by claiming the income as capital gain instead of business income.

“Such regular and timely clarification by CBDT on disputed issues is in line with its aim to bring uniformity in AO’s approach and certainty of tax liability for the assessee, which furthers the confidence of investors in India’s tax regime,” said Rakesh Nangia, Managing Partner Rakesh Nangia.

However, CBDT carves out three exceptions wherein this clarification shall not apply — genuineness of transactions in unlisted shares itself is questionable; transfer of unlisted shares is related to an issue pertaining to lifting of corporate veil; and transfer of unlisted shares is made alongwith the control and management of underlying business. It directed AO to take appropriate view in such situations.

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