Give Tax Exemption on conversion of warrants into equity shares – Budget 2017-18 Suggestions

By | March 3, 2017
(Last Updated On: March 3, 2017)

Suggestions on Clauses 3, 23 and 25 of Finance Bill 2017 – Section 2(hf), section 47(xb) and section 49(2AE) – Tax neutral conversion of preference shares to equity shares – Clarification regarding tax treatment for earlier years

The Finance Bill 2017, proposes to amend Section 47 of the Act, by virtue of which conversion of preference share of a company into equity share of that company will not be regarded as transfer. The amendment is proposed to be made by insertion of sub-section (xb) in section 47. [ Read No capital gains Tax on conversion of preference shares into equity w.e.f AY 2018-19 ]

Consequent amendments are also proposed to be made in section 2(42A) of the Act by insertion of sub-clause (hg) in clause (i) of Explanation 1 to section 2(42A) for determining the period of holding of such equity shares, by including the period of holding of the preference shares as well.

Further, sub-section (2AE) is proposed to be inserted in section 49 to compute the cost of acquisition of the converted equity shares. As per the proposed amendment, the cost of such equity shares shall be deemed to be the cost of acquisition of preference shares.

Currently, conversion of bond or debenture of a company into shares of that company is not regarded as transfer.However, no similar tax exemption was available so far in case of conversion of preference shares of a company into its equity shares.


It is suggested that

a) Since this amendment has clarified the real legislative intent, a clarification may be given by way of Explanation in section 47 or by way of an Explanatory Circular that the above provisions would be applicable in respect of earlier years as well.

b) Also, conversion of warrants into equity shares may be covered under section 47.

Source- ICAI Post-Budget Memoranda-2017

Budget 2017-18 Suggestion- Turnover Limit needs to be increased for TDS section 194A/ 194H/ 194I & 194J

Transfer of unquoted shares – double taxation for seller and buyer -Budget 2017-18 Suggestion

Capital Gain – joint development agreement -Budget 2017-18 Suggestions

Gift u/s 56(2)(x) not treated as Income u/s 2(24)? Budget 2017-18 Suggestions

Transfer of carbon credits not treated as Income u/s 2(24)? Budget 2017-18 Suggestions

Clear confusion of TCS on Sale of Jewellery w.e.f 01.04.2017 – Budget 2017-18 Suggestions

Exclude pooling vehicles like Mutual funds, AIP’s from section 115BBDA- Dividend Taxation– Budget 2017-18 Suggestions

Rs 2 Lakh Interest deduction for house property held as stock-in-trade by builders? – Budget 2017-18 Suggestions

Partly Cash Expenditure on Asset – entire amount Disallowed ? Budget 2017-18 Suggestions

Reduce Tax to @ 25% on LLP, Firms, Firms Coverted into Companies, New companies – Budget 2017-18 Suggestions

Withdraw Surcharge@10% for total income between Rs.50 lakhs to Rs. 1 crore -Budget 2017-18 Suggestions

271J Penalty on CA/ Professionals – Reasons for removal -Budget 2017-18 Suggestions

Indirect transfer tax provisions should be extended to Category III FPI – Budget 2017-18 Suggestions

234F – Fee for delayed filing of return – should be Withdrawn – Budget 2017-18 Suggestion

Related Post on Budget 2017-18

Budget Speech 2017-18 -Download /Print

Finance Bill 2017 -Download /Print -Budget 2017-18

Memorandum Explaining Provisions in Finance Bill 2017

Updates  on Union Budget 2017-18

Books on Budget 2017-18

Taxmann’s Budget 2017-18 -Book

Budget 2017-18- Notifications on Central Excise , Customs and Service tax – New Book

Ajit Prakashan’s Union Budget 2017-18 -New Book

BDP’s Customs Law Manual (2017-18 Budget Editon with CD) -New Book


Leave a Reply

Your email address will not be published.