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Capital gains on unlisted entities till Jan 31 to be grandfathered

The Economic Times |

15 March 2018

Jaitley in Budget 2018-19 had reintroduced the LTCG tax on gains exceeding Rs 1 lakh.

Capital gains on unlisted entities accrued till January 31 will be grandfathered and the methodology for valuation will be prescribed in the related amendment, Revenue Secretary Hasmukh Adhia said today.

He was speaking to ET Now.

In tax parlance, grandfathering means giving exemptions to certain sections from complying with the legislative mandate.

The tax relief on long-term capital gains on unlisted shares is to be introduced as an amendment in Parliament as early as today, according to a Bloomberg report. 

Finance Minister Arun Jaitley in his 2018-19 Budget had reintroduced the LTCG tax on gains exceeding Rs 1 lakh flowing from the transfer of listed shares at 10 per cent, without allowing any indexation benefit. However, all such gains up to January 31, 2018, will be grandfathered. 

The debate over the issue is splintered though. 

In the previous RBI policy meet in February, Governor Urjit Patel had said: "There are five different levies on capital which impact investments and savings."

He had talked about corporate tax on companies, dividend distribution tax, a tax for dividend income above Rs 10 lakh, a securities transaction tax and also capital gains tax which already exist in the economy. "The taxation on capital in India is from several sources and I think that then at the marginal rate, it adds up," the Governor had added.

Vinod Nair, Head Of Research at Geojit Financial Services, had termed the timing as a "surprise". "Although market was expecting introduction of LTCG tax, but the early timing was a surprise for the market. Further, low gap in LCCG and STCG may be a point of concern in future for the market," Nair had stated.

"The grandfathering provision of taxing long-term gain with the 31 January 2018 being the cut-off date would come as a relief with the market prices touching all-time high for exempting actual gains accruing to investors in future," Partho Dasgupta, Partner Tax and Regulatory services, BDO, India had said.