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Thursday, 1 February 2018

Not all listed share transactions will get LTCG exemption

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In the 2017 Budget, an amendment was made to the provisions relating to the exemption for long-term capital gains on sale of listed equity shares on a recognised stock exchange. The amendment provided that the exemption would not apply to equity shares acquired from 1 October 2004 onwards, where no securities transaction tax (STT) was paid on the acquisition. 

The government has been given the power to exclude certain types of transactions from the exclusion, that is, to notify certain types of transactions that would continue to get the benefit of the exemption, even though STT was not paid on such transactions on or after 1 October 2004. The final notification of such transactions was finally issued in the first week of June 2017. The notification is worded in a negative manner. All transactions qualify to continue to get the exemption, except three types of transactions. There are exceptions even to these three types of transactions—these exceptions will also continue to enjoy exemption. Which are these three types of transactions, and what are the exclusions?

The first type of transaction that will not qualify for the exemption is the acquisition of existing listed shares through a preferential issue, where the shares of the company are not frequently traded. Frequent trading would be judged by whether 10% or more of the total number of shares of the company have been traded during the earlier 12-month period. The issue of shares should be one considered as a preferential issue under the regulations by the Securities and Exchange Board of India (Sebi). There are certain exclusions in the Sebi Regulations (such as conversion of debt); these would continue to get the benefit of exemption. 

An exception to the first type of transaction are cases where the acquisition has been approved by the Supreme Court, High Court, National Company Law Tribunal, Sebi or the Reserve Bank of India. These cases would be situations of mergers, demergers, restructuring of capital, and others. Besides investments by non-residents under the foreign direct investment route, or by alternative investment funds, venture capital funds or qualified institutional buyers would also be excluded. All these would continue to qualify for the exemption. 

The second type of transactions that will not qualify for the exemption are transactions of acquisition of an existing listed equity share not through a stock exchange. In this case, the exceptions which will continue to get the exemption, besides the exceptions to the first type of transaction, include allotment of shares under an employee stock option plan (Esop) and the transfers that are exempt from capital gains. Transfers exempt from capital gains would include shares received by way of inheritance, as gifts, on partition of a Hindu Undivided Family (HUF), on settlement on a Trust, on conversion of preference shares or debentures, or others.

The third type of transactions that will not get the benefit of exemption are the acquisition of shares of a company during the period in which it is delisted, before re-listing.

Purchase of an infrequently traded share on a stock exchange would not be affected by the amendment, and would continue to get the exemption on sale. It is only if the shares are allotted by a company under a preferential issue, that there would be denial of exemption on sale. Transactions such as conversion of convertible securities into shares will still qualify for the exemption, as will receipt of shares under Esop, inheritances, gifts, partition of HUF, and others. Besides, shares of a company that are acquired when they are not listed, but which get listed later, would also get the benefit of the exemption on sale.

There are, however, still some genuine transactions that may get impacted. While settlement of shares on a Trust would qualify as an acquisition eligible for exemption on sale, there is no clarity about the position of the beneficiary of a Trust receiving shares on distribution by the Trust. Similarly, if you happen to purchase listed shares of a company from friends or relatives, to accommodate their immediate need for funds (often this may happen when the shares are not dematerialised), you may find yourself having to pay capital gains tax on ultimate sale of the shares. 

By and large, the notification addresses most of the major concerns that taxpayers had when the budget amendments were brought in, and excludes most genuine transactions from the ambit of the amendment. There are, of course, exceptional situations that may still get impacted. It is admittedly difficult for any legislation to deal with all possible permutations and combinations, and therefore the notification is fair and reasonable. 

The only problem is the language of the section and the notification, which makes it difficult for even a professional to comprehend. The tax exemption has an exclusion, which has notified exceptions. The notified exceptions have exclusions, which again have exceptions. This could be a real test for law students to test their comprehension skills. 



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SIPs are when Stock Market is high volatile. Invest in Best Mutual Fund SIPs and get good returns over a period of time. Know Top SIP Funds to Invest Save Tax Get Rich

For further information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

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Fixed Deposit Products

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Once you decide to start saving money, what is your first stop? For most Indians, it is deposit products, thanks to their convenience and guaranteed returns. Many first-time investors who are not familiar with different types of financial products, such as mutual funds, also prefer these as an initial step.

Very senior citizens (whose need for funds are very near term), and those who are absolutely risk-averse also prefer deposit products. While these do not score high on real returns, there are investors who prefer deposit products. Here's a look at some of them. 

Savings account deposits

This is the most basic type of deposit if you have a bank account. The current interest rate is 3.5-7% per annum, depending on the bank and the amount invested.

This deposit also comes with clauses such as minimum balance requirement. A savings deposit account can be used to receive money and for the amount that you need for regular expenses, including loan instalments. 

Bank fixed deposit investments

Your money earns a higher interest in bank fixed deposits than it does in a savings account. The drawback of this deposit is that with it you have less flexibility than in a savings account. Plus, it comes with a pre-defined maturity date.

While investing in these, know that, usually, the lower the tenure of the deposit, the lower will be the interest rate.

The rates of interest also depend on liquidity and cost of fund requirements of the bank. The current interest rates on bank fixed deposits range between 3.5% and 7.5%, depending on the tenure. The tenure can vary between 7 days and 10 years. One good thing about these is that senior citizens get higher interest rates. Some of these offer tax benefit. Banks also offer variants of fixed deposits such as sweep-in facility where after a certain limit in your savings account, the money automatically moves to a fixed deposit. Bank fixed deposits work for people in the lowest tax bracket; those who are risk averse; and those who want guaranteed returns. 

Recurring deposit

This product allows you to deposit money on a recurring basis. Most banks offer this product. It usually works for people who don't have a lump sum amount to invest at one go but can deposit on a monthly basis. The interest rates currently range between 5.50% and 7.50%. It comes with a maturity period (6 months to 10 years). Like fixed deposits, if you withdraw your money from a recurring deposit before maturity, a penalty will apply or you may have to let go of the interest. In case there is a delay in paying the instalment, you will have to pay a penalty. This product works for those who are in the lowest tax bracket or first-time savers who want to inculcate the habit of saving regularly. 

Corporate fixed deposits

As part of the process of raising money, companies also issue fixed deposits. Usually, the interest rate on these is 100-200 basis points higher than bank fixed deposits; but they are also riskier. Currently, the interest rate on some of these is as high as 9.50%. Tenure is similar to that of bank fixed deposits. These deposits come with credit ratings—the higher the rating, the lesser the chances of default. Before investing here, do your due diligence on the company's fundamentals; there have been cases of default and even fraud. 

Products from Post offices: India post

India Post also offers multiple deposit products. The interest rate on savings deposit is currently 4% per annum, and minimum amount for opening one is Rs20. The recurring deposit in post office offers 7.1% per annum, which is compounded quarterly, and comes with a 5-year lock-in. The time deposit offers 6.8-7.6% for tenures of 1-5 years.



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For further information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

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Mutual Fund Portfolios

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Want to invest in mutual funds but don't know which schemes to buy? Already invested in mutual funds but not sure if they are appropriate? Hold a large number of schemes and want to cut them down to a manageable number? 

If these issues are troubling you, our seventh anniversary cover story could provide solace. We have designed five model fund portfolios for investors of different risk profiles and financial situations. 


These five portfolios cover almost the entire spectrum of the investing population, ranging from aggressive investors who are willing to live with volatility to conservative investors who want reasonable growth with minimal risk. We also have a portfolio for retirees looking for returns that can beat inflation and provide regular income from the investments. Each of these portfolios have five funds. The funds have been chosen on the basis 



SIPs are when Stock Market is high volatile. Invest in Best Mutual Fund SIPs and get good returns over a period of time. Know Top SIP Funds to Invest Save Tax Get Rich

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OR

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