look news india
MUMBAI: Secondary sales of shares worth Rs 1.90 trillion through initial public offerings (IPOs) over six years from April 2018 are likely to attract long-term capital gains (LTCG) tax along with interest. This recovery is expected to come after clarifications in the Budget.
Due to uncertainty over the applicability of LTCG, which was re-introduced from 2018, some promoters and private equity (PE) investors avoided paying the tax.
However, in the budget of the current financial year, not only has the implementation of LTCG been clarified, but it has also been made clear that it will be implemented from April 1, 2018.
About 65 per cent of the Rs 3 trillion raised through public offerings since FY19 has been raised through secondary or offer for sale transactions of equity, an analyst said.
In many IPOs, the sale of shares through IPO Offer for Sale was being done without taking into account a technical issue and tax was not paid on it. The analyst also said that the purpose of the law is not clear and in the current budget, the government has made it clear considering that many IPOs are coming up.
Promoters and private equity investors who have raised money so far will have to pay LTCG tax along with interest on sale of their shares, a tax expert said.
In the 2018 budget, the government had introduced 10 per cent LTCG on shares sold after one year of holding. However, the enacted law states that the LTCG tax will apply only to transactions on which securities transaction tax (STT) has been levied.
In case of IPOs, STT is not levied as the sale of shares does not take place through the exchange. Moreover, the absence of a framework to derive the fair market value of shares of an unlisted company was also making the calculation of LTCG confusing.
The tax expert also said that now that the framework for obtaining information about fair market value has been finalised in the current Budget, it will be easier to know at what price the equity has been acquired.
The government has not received any estimate of how much tax will be collected from this clarification, but it is expected that tax officials will assess it from the financial year 2019 itself.
LTCG tax is expected to be levied on IPOs worth around Rs 1 lakh crore in the next 12 months.
