Abhishek Securities

SEBI-appointed panel also suggests allowing overseas firms to list in India A committee appointed by the Securities and Exchange Board of India (SEBI) has recommended allowing unlisted Indian companies to directly list their shares on overseas exchanges in at least 10 countries. It also suggested allowing unlisted companies from such countries to list their shares on Indian bourses. While this is a major shift from the current regulatory regime that does not allow unlisted Indian companies to have a direct overseas equity listing, it would require changes in regulations that are outside the purview of the capital market watchdog. “Listing may be allowed only on specified stock exchanges in permissible jurisdictions,” the report stated, adding that such listing can benefit companies in the form of alternate source of capital, broader investor base, better valuation along with other strategic benefits. While allowing overseas companies to list in India, the committee is of the v...

DEMATERIALIZING UNLISTED SHARES: HOW CHANGES AFFECT SHAREHOLDERS Listed companies in India had moved from paper share certificates to the electronic-form, i.e. dematerialized shares way back in the year 1996. However, there was no such mandate in case of unlisted companies leading to instances of fraudulent share transfers and other disputes which resulted in unwanted litigation and hardship for the actual shareholders. To bring in further transparency, improve the know your customer (KYC) framework and overall investor protection, the Indian government has recently made it mandatory for all unlisted public companies to dematerialize their securities. It is pertinent to note that private companies are still exempt from getting their shares dematerialized. This article focuses on the impact and way forward for the shareholders of Indian unlisted public companies in light of this recent development. A public company means a company, other than a private company, formed under th...

Individual wealth in India grew by over 14 percent to reach Rs 392 lakh crore in FY18. This was achieved by a huge 17.42 percent wealth growth in financial assets and 9.24 percent growth in physical assets. Indians' individual wealth grew 14% in FY18 boosted by financial assets:  Investing in unlisted equity has increased Unlisted equity grew by 36.83 percent in FY18, this has been one of the favourite asset classes amongst HNIs. These shares are not listed on any stock exchange and not as liquid as shares listed on stock exchange. These shares are generally privately placed between the buyers and sellers and traded in the over the counter (OTC) markets. Sandip Ginodia , Director   A LTIUS INVESTECH PVT LTD | ABHISHEK SECURITIES We deal in over 60 unlisted companies with 15 years of experience . For latest prices visit :  www.abhisheksecurities.com/unlisted.htm  / call : 09830271248 . Email :  ginodiasandip1@gmail....

LTCG on unlisted equity shares continued to be taxed after providing for indexation. Accordingly, taxpayers are generally familiar with the LTCG regime including the mechanism for indexing the cost of acquisition w.r.t inflation. The new regime for LTCG proposed in the Finance Bill, 2018 has been designed in a similar manner. In fact, the computation of LTCG is now simpler since the cost of acquisition is not required to be indexed. This computation process does not involve any discretion on the part of the taxman. Moreover, all doubts have already been clarified by way of FAQs released by the CBDT as early as on February 4, 2018. More such FAQs can be released in due course, if the need arises. Thus, there is no reason to believe that the proposal will give rise to any kind of governance issues. Sandip Ginodia , Director   A LTIUS INVESTECH PVT LTD | ABHISHEK SECURITIES We deal in over 60 unlisted companies with 15 years of experience . For latest prices visit :...

India’s apex body for direct taxes has proposed new rules for bringing the value of unquoted shares on a par with the fair market value of underlying assets, seeking to prevent tax avoidance by firms that use the historical acquisition cost to set the price of unlisted stock.  The Finance Act, 2017, inserted a new section to the Income tax Act on the valuation of unquoted shares — those not listed on any exchange — at fair market value for computing capital gains tax. It had also introduced new provisions to expand the scope of taxation of any gift or property received for inadequate consideration.  The Central Board of Direct Taxes on Friday released draft rules prescribing the method of valuation of any such property, jewellery, artistic work, immovable property, or shares and securities. Stakeholders have until May 19 to provide their comments.  According to the draft rules, the “net asset book value” method is proposed to be adopted for the valuation of shares. Fo...

INCOME TAX I sold a certain number of shares of an unlisted company in September 2016. These shares were purchased by me in March 2014. What is the tax implications if there is a gain arising on proposed transfer of the said shares? —Answer ::: As per the third proviso to Section 2(42A) newly inserted by Finance Act 2016, the shares of unlisted company shall be considered as short-term capital asset if they are held by the assessee for a period of not more than 24 months before the date of its transfer. Therefore in the instant case, since the shares of the unlisted company are held for a period of more than 24 months, the gain on sale of such shares shall be taxable as long term capital gains at the rate of 20% (with cost indexation benefit). Sandip Ginodia , Director   A LTIUS INVESTECH PVT LTD | ABHISHEK SECURITIES We deal in over 60 unlisted companies with 15 years of experience . For latest prices visit :  www.abhisheksecurities.com/unlisted.htm ...

Under the Income Tax Act 1961 (IT Act), buy back of unlisted shares by a company attracts additional corporate tax (Buy Back Tax/ BBT) in the hands of the company and the resulting capital gains, if any, in the hands of the shareholders are exempt from tax. The BBT is levied at the rate of 20% (plus applicable surcharge and cess) on the difference between the amount which was received by the company for issue of shares (Amount) and the consideration paid by the company on buy-back of such shares. The Central Board of Direct Taxes (CBDT) has now issued draft rules 1  (Draft Rules) for prescribing the manner of determination of Amount in various scenarios as set out below. The Draft Rules will be finalised after considering comments of the stakeholders and public, and will then be incorporated in the Income Tax Rules, 1962. Sandip Ginodia , Director   A LTIUS INVESTECH PVT LTD | ABHISHEK SECURITIES We deal in over 60 unlisted companies with 15 years of experien...

I’m living in London for the last 5 years. I have few Indian stocks and want to book a profit. How will I be taxed? —Sayantan Chandra Capital gain from sale of shares of an Indian company is taxable in India. The taxability will depend on the nature of the asset, holding period and residential status of the seller. Capital gain on sale of equities listed on a recognised stock exchange in India will be classified as long term if held for more than 12 months. Long-term capital gains (LTCG) from share sale are tax exempt provided securities transaction tax has been paid. Short-term capital gains (STCG) on sale of listed equity shares are taxable at 15% plus applicable surcharge and education cess provided securities transaction tax has been paid; an effective tax rate of 17.77%. Capital gain on sale of unlisted shares will be classified as long term if held for more than 24 months. STCG on sale of such equity shares are taxable at applicable marginal tax rate, plus applicable surc...

I have received shares under the employee stock option plan (ESOP) from my employer. Can you please explain the tax liability on selling these shares? —Kishore Shah There are two stages of taxation for shares allotted to employees under ESOP. The first point is when the shares are allotted by the employer company. The same is taxed as salary or perquisite in the hands of the employee. The second is when the employee sells the shares allotted to her under ESOP. At this stage, the gains are taxed as capital gains. In the first stage, the difference between the shares’ fair market value (FMV) on the date of exercise and the exercise price paid by the employee, if any, is taxable as perquisite or salary on the date of allotment of shares. Accordingly, the employer would compute and deduct the tax on perquisite or salary resulting from allotment of shares to you under ESOP. The income and the perquisite tax deducted by the company thereon would be reflected in your Form 16. Furt...

The Central Board of Direct Taxes (" CBDT ") with the objective to reduce litigation and to maintain consistency in approach on the issue of treatment of income derived from transfer of shares and securities, has issued circular no. 6/2016 dated February 29, 2016 ( "Circular "), and a follow up letter no. F.No.225/12/2016/ITA.II dated May 2, 2016, (" the CBDT Letter "). Taxability of surplus generated from sale of listed shares or other securities A majority of transactions in shares and securities take place in respect of listed shares and securities. Therefore, CBDT has instructed the Assessing Officers, vide its Circular, to consider the following principles for determination whether the surplus generated from sale of listed shares or other securities would be treated as capital gain or business income: If the taxpayer himself opts to treat the listed shares or other securities as stock-in-trade, then irrespective of the period of holding of the...

In a fresh boost to startups, the government on Thursday inserted an amendment to the Finance Bill to provide for capital gains tax exemption if shares of an unlisted company were held for more than two years. Currently, there is no capital gains tax on share transactions in listed companies if those stocks are held for 12 months. But shares of unlisted entities face capital gains tax of 20% even after three years. The tax treatment has been a major area of concern for international investors, several of whom are pumping billions into Indian companies. And, the move is expected to spur M&As. The amendment was introduced as finance minister Arun Jaitley introduced other ones to the Bill, which was later cleared by the Lok Sabha. Most of the other amendments were in the nature of clarifications. For instance, buyers will have to pay 1% tax on cars which cost over Rs 10 lakh, which will be collected by the seller. This, officials said, was a clarification, although the move is mea...

As per Income Tax Law, Income earned from Sale of shares could be held as either Business Income or capital gains depending upon the facts of the case which had led to a lot of litigation over the years. The disputes persisted as assesses were finding it difficult to prove the intent of acquiring these shares. In order to avoid disputes and take a consistent view in assessments of such income, CBDT has decided that income arising from transfer of unlisted shares would be considered under the head ‘Capital Gain’. It may be noted that a similar instruction had earlier been issued by CBDT regarding tax treatment of investment in listed shares but this instruction for unlisted companies is more beneficial as the requirement of period of holding has also been dispensed with. It is however, clarified that this would not be necessarily applied in 3 situations where: i. The genuineness of transactions in unlisted shares itself is questionable; or ii. The transfer of unlisted shares is ...

Long-term capital gains on sale of listed shares has now been exempt from tax for more than 10 years, since it was implemented in October 2004. The exemption applies in cases where the Securities Transaction Tax (STT) has been paid, and therefore effectively applies to all transactions of sale of listed shares on a recognised stock exchange. In recent years, the scope of the exemption has been effectively extended to a couple of more types of transactions, not by amending the provision governing the exemption, but by bringing the transactions within the net of STT. One such type of transaction is the public offer for sale of shares. A public offer could be of two types (or a combination of these two)—one, an offer where the company issues shares to the public by allotting new shares, and second, an offer made by the existing shareholders of the company (which may be promoters, venture capital funds, private equity funds, or others) to the public of existing shares held by them in ...