Why in News?
The Centre opened for public discussion its proposed clause in the Income Tax Act that would give the government the power to specify the applicability of the long-term capital gains tax and the security transaction tax.
FACTS FOR PRELIMS
The Finance Act 2018 had introduced Section 112A in the Income Tax Act, to provide that long-term capital gains arising from the transfer of a long-term capital asset, if it is an equity share in a company, be taxed at 10% of the value of the gains exceeding ₹1 lakh.
The section provides that the provisions of the section shall apply to the capital gains arising from a transfer of long-term capital asset being an equity share in a company, only if securities transaction tax (STT) has been paid on the acquisition and transfer of such capital asset
Long-Term Capital Gains Tax
It is the tax paid on profit generated by an asset such as real estate, shares or share-oriented products held for a particular time-frame.
LTCGT was reintroduced in the Union Budget 2018; The Budget also provides for a grandfathering clause.
The ‘grandfathering’ clause is the exemption granted to existing investors or gains made by them before the new tax law comes into force.
Securities Transaction Tax
STT is levied on every purchase or sale of securities that are listed on the Indian stock exchanges. The rate of tax that is deducted is determined by the central government, and it varies with different types of transactions and securities
STT is deducted at source by the broker or AMC, at the time of the transaction itself, the net result is that it pushes up the cost of the transaction done.
STT was introduced in the Budget of 2004 and implemented in Oct 2004. The objective behind the levy is to mitigate tax evasion as the same is taxed at source. Stocks, futures, option, mutual funds and exchange-traded funds come under the ambit of STT.