Thursday, 9 October 2014

Tax Implication of Finance Act 2014 on Unlisted Shares

Before the annual Budget 2014-15 was introduced, the shares of listed company or private company held for over 12 months were categorised as long-term capital asset (LTCA). But the Finance (No 2) Act 2014 has amended this position with effect from April 1, 2014, and now only listed shares, if held for over 12 months, would be considered as LTCA. The unlisted shares must be held for over 36 months to qualify as LTCA.
The amendment offered relief to those holding unlisted shares for more than 12 months and less than 36 months, and selling them between April 1 and July 10, 2014. The amendment provided that gains on such sales would be considered long-term capital gain (LTCG). Accordingly, listed shares if held for less than 12 months or unlisted shares held for less than 36 months would be termed as short-term capital asset (STCA).
Tax implications are different for LTCG and short-term capital gain (STCG), depending upon the duration of the asset.
Tax implication on LTCG
LTCG is not taxable under the Income Tax Act (the Act) if securities transaction tax (STT) has been paid on the sale of shares. If STT is not paid on the sale of the shares, LTCG is computed by reducing from the sales consideration the indexed cost of acquisition and improvement and expenditure incurred in the transfer. The LTCG so computed is taxable at 20%. For listed securities, in case the tax so payable exceeds 10% of LTCG computed without considering the indexed cost of acquisition, the excess is to be ignored. The tax amount would have to be increased by education and higher education cess at 3% and surcharge as applicable.

Sandip Ginodia , Director
We deal in over 60 unlisted companies with 15 years of experience .
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