Promoters, PEs to pay retro tax on OFS growth

Promoters and private equity (PE) investors who failed to pay capital gains tax on selling their shares through offer for sale (OFS) in initial public offerings (IPOs) will have to deposit the amount following amendments in tax laws.
Taxpayers, in some cases, were not paying capital gains tax citing the absence of an express provision to determine the fair market value (FMV) of the equity shares as these were originally unlisted, although the securities on them were Transaction Tax (STT) was paid. , The new rules will be applicable retrospectively from February 18, 2018. Thus, all sales after this date will be covered by the changed provisions.
Revenue Secretary Sanjay Malhotra told FE that the government has not yet been able to fully estimate the amount of tax to be collected. “We still have work to do on this but we need to bridge this gap,” Malhotra said.
As Vivek Gupta, partner, Deloitte India, observed, many promoters were of the view that they were not liable to pay any capital gains tax as the fair market value was uncertain.
he said that “However, this point has not been clarified by the tax authorities who have made it clear that capital gains tax is payable,”.
The amended provisions of the Income Tax Act, 1961 define what fair market value means, leaving no obscurity on the matter. FMV means the amount which bears the cost of acquisition, in the same proportion as the cost increment index for 2017-18 bears to the cost inflation index for the first year in which the asset was held by the assessee or for the year beginning on 1 April Is meant for. , 2001, whichever is later.
Section 55 of the Income-tax Act is amended by adding sub-clause (iii) of clause (a) of the Explanation to clause (ac) of sub-section (2) of section 55 of the Act.