Capital Gains Taxationfor AY 2018-19 (FY 2017-18)
Cost of index for FY 2001-02: 426
2. Holding period of immovable property(Reduced from 36 months to 24 Months)
At present, in order to avail the indexation benefit and the concessional tax rate of 20% on transfer of a long-term capital asset, certain assets are required to be held for a period of more than 36 months. With a view to promote investment in the real estate sector, the Budget proposes to reduce the holding period for immovable property from 36 months to 24 months.
3. Investment of Long term Capital Gains
The current tax provisions provide for exemption of long term capital gains to the extent of INR 50 lakhs from tax, if the taxpayer invests the whole or any part of capital gains in National Highway Authority of India or Rural Electrification Corporation Limited bonds within the specified time. In order to stimulate investment and growth in other sectors through funding, the Budget proposes to extend this incentive to other Central Government notified bonds redeemable after 3 years. Though the tax payer will have options for investing in different bonds, the investment limit of INR 50 lakhs has not been altered.
4. Capital gains arising in Joint Development Agreements (‘JDA’)
The taxability of capital gains arising on transfer of title to the land from the land owner to the developer in a JDA has always been a contentious issue. From the perspective of land owner, taxability of capital gain arises once the land is transferred for ascertained consideration. To address the satisfaction of the term ‘transfer’, the definition was widened to include ‘transfer’ as contemplated under provisions of Transfer of Property Act. However, there was no prescription for ascertainment of the consideration. This situation led to litigation as the consideration was received by the land owner only over the duration of the project. The timing difference resulted in undue burden of paying high capital gains tax for land owners without having the funds to do so.
5. Exemption under Section 10(38) of the Act
It has been proposed to restrict the exemption available on sale of listed shares, only to such shares which have suffered STT on purchase. The exceptions to this provision are as follows:
6. Conversion of Preference shares to Equity shares to be tax neutral
The Budget proposes to amend section 47 of the Act, stating that conversion of preference shares of a company to equity shares will not be treated as transfer. The absence of this provision had raised concerns as conversion of debentures into equity was specifically not treated as transfer. This is therefore a welcome move and should provide certainty going forward. Having said so, though this provision is proposed to be prospective, it is likely that the tax payer may contend that this amendment is clarificatory and should not adversely impact conversion in past.