The Central Board of Direct Taxes (CBDT) on Tuesday laid down the conditions for allowing a concessional rate of 10 per cent tax on long-term capital gains tax (LTCG) arising from transfer of a equity shares or equity oriented fund, even when securities transactions tax (STT) has not been paid on such transactions.

According to the Income Tax Act, the LTCG tax on such transactions would be 20 per cent if STT has not been paid. The board has now said that in many genuine cases, STT could not be paid while acquiring shares and such transactions would still qualify for a lower LTCG tax rate.

The draft notification said payment of STT as a necessary condition will not apply to cases where acquisition of existing listed equity share in a company, whose equity shares are not frequently traded in a recognised stock exchange of India, is made through a preferential issue.

Further, it will also not apply to transaction for acquisition of existing listed equity share in a company not entered through a recognised stock exchange of India.

The exemption has also been provided to companies whose shares are delisted and listed again later.

“Acquisition of equity share of a company during the period beginning from the date on which the company is delisted from a recognised stock exchange and ending on the date immediately preceding the date on which the company is again listed on a recognised stock exchange in accordance with the Securities Contracts (Regulation) Act, 1956 read with Securities and Exchange Board of India Act, 1992 (15 of 1992) and the rules made there under,” the draft notification said.

Garima Pande, partner & business tax services leader at EY India, said, “Finance Act 2018 provided for long term capital gain tax on transfer of specified securities only if securities transaction tax has been paid on acquisition and transfer of such capital asset. The central government had exempted certain modes of acquisition of equity shares from the condition of payment of STT at the time of acquisition in order to be eligible for 10 per cent LTCG regime. There can be various genuine cases where STT could not have been paid.”

The notification will come into effect from April 2019 and the board has asked stakeholders for comments by April 30.

“To provide the applicability of the tax regime under Section 112A of the I-T Act to genuine cases where the STT could not have been paid, it has also been provided in sub-section (4) of Section 112A of the Act that the Central Government may specify, by notification, the nature of acquisitions in respect of which the requirement of payment of STT shall not apply in the case of acquisition of equity share in a company,” the finance ministry stated.