Shares & Securities.ppt Rajesh Yadav

TAXATION OF

SHARES & SECURITIES

BY

Rajesh B. Yadav

Rajesh

SHARES & SECURITIES

A. Shares S. 2(46) of Companies Act Equity & preference – Pvt.

or public-listed or not. Bonus, Rights, Split, Stock

B. Securities Securities–S. 2(h) of SCRA

includes shares, scrips, debenture, includes shares, scrips, debenture, stock, bondsstock, bonds

DerivativeDerivative Government securitiesGovernment securities Instruments declared by Cen. Govt.Instruments declared by Cen. Govt. Rights or interest in securitiesRights or interest in securities

April 8, 2023

Rajesh

SPECIFIC ASPECTS 

  Period of holding Cost of Acquisition Indexation Taxation & Concessional rate Dematerialization Business - speculation Dividend Instruments related

Events related Non Resident Invsts. Foreign Securities Derivatives Planning & fiction

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Rajesh

PERIOD OF HOLDING

Relevance for shares, etc.-concessional period

Date of acquisition-Allotment unless provided

12 months completed on-preceding date

12 months– according to British calendar

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Rajesh

DATE OF ACQUISITION

Purchase/sale from market ‘Sale’ not defined-Date of Contract-Cir. No. 704 Nature of property S. 82 of Companies Act-Sale of Goods Act Delivery with duly executed transfer form Pay–out date–Alternative pay in – Applies to shares in E-Form, demat account Vandha–Bad delivery

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COST OF ACQUISITION

Not defined Commercial man Acc. Principles Brokerage

Stamp dutyStamp duty Legal charges Legal charges Service taxService tax

InsuranceInsurance Private placement funding

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INTEREST AS A PART OF COA

Difficulty due to exemption u/s 10(34), 10(35)

S. 48 COA One view

Com & Acc. principleCom & Acc. principle not defined not defined exp. for acquisition exp. for acquisition

Other view Revenue nature Revenue nature Subsequent payment & Subsequent payment &

costcost  

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Rajesh

DEMATERIALISATION

Concept DepositoryDepository DPDP DRFDRF

S. 45(2A) Beneficial Owner only-FIFO MethodBeneficial Owner only-FIFO Method Applicability to a dealerApplicability to a dealer

Circular No. 768 Overrides S. 45(2A) as also Cir. No. 704Overrides S. 45(2A) as also Cir. No. 704

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INDEXATION

Bonds and Debentures Amalgamation and Demerger Annual Interest Capitalisation Difficulty

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LTCG EXEMPTION – S. 10(38)

New regime of STT Condition for compliance

Capital assetCapital assetEquity SharesEquity SharesEOMF unitsEOMF unitsHeld as investmentHeld as investmentTransfer on or after 01.10.2004Transfer on or after 01.10.2004Transaction of transfer liable to STTTransaction of transfer liable to STTLTCALTCASale essentialSale essential

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Rajesh

IMPLICATIONS- S. 10(38)

Available to all assessees Other shares & securities not included Not restricted to BSE 500 Regular quotation not required Recognized SE not required – STT required Mode of purchase/acquisition not relevant Bonus shares also

Originally Private CompanyOriginally Private Company Originally bonds, warrants, etc,Originally bonds, warrants, etc, Inheritance, amalgamation, demergerInheritance, amalgamation, demerger

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Rajesh

IMPLICATIONS- S. 10(38)

Buyback, Amalgamations, Open offer exchange, Reduction, Redemption, Rights, de listed shares

Benefit for ESOP Loss on transfer whether adjustable Unabsorbed loss – whether set-off possible

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IMPLICATIONS- S. 10(38)

EOFInvestment in equity sharesInvestment in equity shares50% of total proceeds – Proceeds ?50% of total proceeds – Proceeds ?Shares of domestic companyShares of domestic companySpecified u/s 10(23D)Specified u/s 10(23D)Annual average of monthly averageAnnual average of monthly averageDate of determination not clearDate of determination not clearPayment of STTPayment of STT

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CONCESSION - STCG – S. 111A

Capital assetEquity SharesEquity SharesUnits of EOMFUnits of EOMF

STCA 10% of gains + SC + EC STT not deductible Other deductions possible

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STCG- s. 111A

Other conditions to apply Chapter VI-A deductions after exclusion Rebate under s. 88 on balance Rebates possible u/s 88 B,C& D Additional relief for Individual and HUF

Non resident Non resident All Assessees

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STCG – s. 111A

Rebate Exclusion from Rs. 5,00,000/- GTI Exclusion from Rs. 5,00,000/- GTI

LossesOption not to set-offOption not to set-offWhether set-off of other losses possible Whether set-off of other losses possible Cir. No. 721 dated 31.09.1995Cir. No. 721 dated 31.09.1995Script wise calculationScript wise calculationWhether STCL can be set-offWhether STCL can be set-off

April 8, 2023

Rajesh

SECURITIES TRANSACTION TAX (STT)

Nature of Tax Effective date Applicability

Shares of & EOMFShares of & EOMF‘‘Shares’ & ‘Securities’ excludedShares’ & ‘Securities’ excluded

Transaction on a recognized stock exchangeTransaction on a recognized stock exchangeTransactions excludedTransactions excluded

Delivery and Non DeliveryDelivery and Non DeliveryPurchase and/or salesPurchase and/or salesPersons coveredPersons covered

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CREDIT / REBATE FOR STT

88E w.e.f. A.Y. 2005-06 Possible for ‘Business Income’ Equivalent to STT paid Credit not exceeding I.Tax on STT income Average rate of tax & s.2 (10) Evidence with Return of Income No refund and c/f possible Set-off against tax on other income STT on purchase eligible Difficulties in case of common business

April 8, 2023

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RIGHT ENTITLEMENTS

  DOA-Date of offer Dhun Kapadia’s case COA-Nil-Unless acquired from market Merges into right shares

RIGHT SHARES

DOA-Allotment-Indexation also COA -Amount actually paid

COA of entitlement if anyCOA of entitlement if any

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BONUS

Position before amendment DOA-Allotment COA-Nil Genuine difficulty in some cases Applies to units also Bonus in the hands of a dealer Bonus stripping

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BUY-BACK

Concept Controversy settled S. 2(22) and S. 46A Proceeds are sale consideration Other provisions to apply Applicability to dealer

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AMALGAMATION

Whether transfer Exemption vide S. 47(vii) on compliance POH-Old period to be included COA-Old COA Substitution of FMV possible Indexation Does not apply to dealer

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Rajesh

DEMERGER

Concept of demerger COA-Part I & Part II DOA-Old date for Part I Substitution of FMV for Part I Indexation for Part I Part III

COA of Part IICOA of Part II DOA of Part IDOA of Part I Substitution of FMV possible Substitution of FMV possible Craig Harvey’s caseCraig Harvey’s case Indexation possibleIndexation possible

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REDEMPTION / REDUCTION  

Concept Transfer Effect of transfer

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CONVERTIBLE DEBENTURES

Concept Mrs. A Ghosh’s decision Exemption vide S. 47(x) DOA-of allotment of shares COA-proportionate-historical Indexation - from the date of allotment Disparity between date and cost of acquisition

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DISCOUNT BONDS

Concept Instruction No. 225 dated 12.08.1996-Interest Position of buyer from market Position of seller following accrual method Appropriate course of action Cir. No. 2/2002 dt. 15.2.2002 Press Release dt. 20.3.2002-Prospective

April 8, 2023

Rajesh

NRI- CHAPTER XII A-I

Special treatment for investment income and LTCG Inv. Income at 20% & LTCG on F/E Asset at 10% STCG - Specified asset -Non F/E Asset- Bonus share Re-investment of LTCG on F/E Asset No deduction for expenditure No allowance or Chapter VI-A benefit

April 8, 2023

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NRI– CHAPTER XII A-II

No benefit of indexation Illusionary benefit and s. 112 Continuation of benefit on becoming a resident Exemption for filing Return of Income Option to opt out Possible to apply for combination LTCG on non-specified asset

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FOREIGN SECURITIES

No specific provisions – regular provisions Holding period – Shares, units, securities Special u/s 10(36) and not available Benefit of exemption 10(34) and 10(35) not

available Computation of Capital Gains Benefit of indexation possible – proviso to s. 112

benefit not available Treatment of losses Tax Audit and DTC and s. 91

April 8, 2023

Rajesh

DIVIDEND AND INCOME FROM UNITS 10(34) AND 10(35)

Exemption from tax Tax in the hands of payer u/s 115 O/R at 12.5% Deduction of expenses and s. 14A Possibility of capitalization Provision of s. 94(7)

April 8, 2023

Rajesh

CONCESSIONAL RATE S. 112

LTCG at 20% Threshold exemption for individual and HUF Set-off of losses mandatory Special concession under proviso 10% tax on LTCG – listed securities or units Computation without indexation Whether optional – simultaneous calculation Right to set-off losses on securities and units M. Ramanlal. 3 ITD 122 (Ahd) Nimesh S. Shah, 36 BCAJ 645 (Mum)

April 8, 2023

Rajesh

DERIVATIVES-I

A Derivative is: an instrument whose value is derived from the value of

one or more underlying assets like commodities, currency, securities, index, etc.

Whether an asset-Security under SCRA Whether independent asset-Cash settled, Rights,Warrants Whether a capital asset-S. 2(14), Property with value Head of Income-Relevant factors Likely concession for commodities

April 8, 2023

Rajesh

DERIVATIVES-II

Whether Speculation Business Applicability of Explanation to S. 73 Treatment of provision for losses Book Profit Effect of daily settlement Method of Accounting Transaction Cost Valuation at the year end Time of accrual of premium for writer

April 8, 2023

Rajesh

DERIVATIVES-III-CAPITAL GAINS

Underlying Assumptions Right an assetRight an asset Fictional purchase & saleFictional purchase & sale Merges with a larger assetMerges with a larger asset

Situations Cash settled Cash settled Hedging Hedging Delivery settledDelivery settled

Short-Term Capital Asset Lapse of contract

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Rajesh

BUSINESS OF SHARES & SECURITIES

Difficulty in distinguishing

On going battle Adv. & disadv Tests

Regular Regular SystematicSystematic ContinuousContinuous Length of holding Length of holding Intention Intention Borrowed funds Borrowed funds

Bank account Bank account Stationery Stationery Business set-up Business set-up Accounting treatment Accounting treatment Realisation of old Realisation of old

investment investment Agency related Agency related Takeover of interest Takeover of interest Public offerPublic offer Time devoted Time devoted Composition of incomeComposition of income

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Rajesh

INVESTMENT V. STOCK

Which is beneficial Allowance of expenses . ConcessionsAllowance of expenses . Concessions Application of s. 14AApplication of s. 14A Set-off of lossesSet-off of losses Credit for STTCredit for STT C/f of lossesC/f of losses

Trade-off Ramnarain & Sons, 41 ITR 534(SC)Ramnarain & Sons, 41 ITR 534(SC) N.S.S. Investments, 277 ITR 149(Mad)N.S.S. Investments, 277 ITR 149(Mad) Mysore Rolling Mills, 195 ITR 404(Karn)Mysore Rolling Mills, 195 ITR 404(Karn)

April 8, 2023

Rajesh

ARBITRAGE

Nature of activity Objectives Income

Business -Capital Gains – Other sourcesBusiness -Capital Gains – Other sources Speculative transactions

Delivery - HedgingDelivery - Hedging Losses

S. 43(5) - Explanation to s. 73S. 43(5) - Explanation to s. 73 Expenses Credit for STT Tax Audit

April 8, 2023

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DAY TRADING

Nature of operations Volume , Frequency Delivery STT

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PORTFOLIO MANAGEMENT Types of arrangements

ParticipatingParticipatingNon participatingNon participating

Nature of feesAdvisory & ManagementAdvisory & ManagementBrokerageBrokerage

Relationship & TreatmentProposal under considerationProposal under considerationDeductibility of expensesDeductibility of expensesBusinessBusinessCapital gainsCapital gains

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SPECULATION BUSINESS-I

S. 43(5) – Delivery essential– Intention not relevant Expl. 2 to S. 28 Separate treatment S. 73 loss Company - Deemed speculation under Expl. Stray transactions of non delivery Investments of company Exception to Explanation

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Explanation applies to losses as also profits Units and other securities Shares of one company Delivery-only business No business-only diminution in value IPO acquisitions Tax Audit

SPECULATION BUSINESS-II

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Rajesh

THANK YOU

April 8, 2023