Exemption of long term capital gains tax under section 10(38) of the Income- tax Act.

By | February 20, 2018
(Last Updated On: February 20, 2018)

CIRCULAR No. 2/2018 Dated 15.02.2018

 Exemption of long term capital gains tax under section 10(38) of the Income- tax Act.

11.1 Clause (38) of Section 10 of the Income-tax Act, before amendment by the Act, provided that the income arising from a transfer of long term capital asset, being equity share of a company or a unit of an equity oriented fund, shall be exempt from tax if the transaction of sale is undertaken on or after 1st October, 2014 and is chargeable to Securities Transaction Tax under Chapter VII of the Finance (No.2) Act, 2004.

11.2 With a view to prevent abuse of this exemption by certain persons for declaring their unaccounted income as exempt long-term capital gains by entering into sham transactions, section 10(38) of the Income-tax Act has been amended to provide that exemption under this section for income arising on transfer of equity share acquired or on after 1st day of October, 2004 shall be available only if the acquisition of share is chargeable to Securities Transactions Tax under Chapter VII of the Finance (No. 2) Act, 2004. However, to protect the exemption in genuine cases, it is also provided that the Central Government shall notify transactions of acquisition for which the condition of chargeability to the Securities Transaction Tax on acquisition shall not be applicable.

11.3 Applicability: This amendment takes effect from 1st April, 2018 and will, accordingly, apply from assessment year 2018-19 and subsequent years.

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