In order to protect genuine transactions, the CBDT came out with a draft notification specifying certain eligible transactions for tax exemption on which STT was not paid

To check tax evasion through “sham transactions” in stock market and protect genuine ones, the tax department on Monday proposed to exempt specified deals from long-term capital gains tax in cases where securities transaction tax (STT) was not paid.

As per the Finance Act, 2017, the income arising by way of a transfer of long-term capital asset, being equity share in a company, will be exempt from tax if such transfer is undertaken after 1 October 2004 and chargeable to STT.

However, in order to protect genuine transactions, the Central Board of Direct Taxes (CBDT) on Monday came out with a draft notification specifying certain eligible transactions for tax exemption on which STT was not paid.

These would include, transaction through preferential issues for shares which are not frequently traded, share transactions which are not affected through recognised stock exchanges, and also in cases where the company has been delisted.

The CBDT has invited comments from stakeholders on the draft notification by 11 April.

The proposed measure is to protect the exemption for genuine cases where the STT could not have been paid like acquisition of share in IPO, FPO, bonus or rights issue by a listed company acquisition by non-resident in accordance with FDI policy, CBDT said in a release.