Shares & Securities.ppt Rajesh Yadav

TAXATION OF SHARES & SECURITIES BY Rajesh B. Yadav

SHARES & SECURITIES A. Shares B. Securities  S. 2(46) of Companies Act  Securities–S. 2(h) of SCRA  includes shares, scrips, debenture,  Equity & preference – Pvt. stock, bonds or public-listed or not.  Derivative  Bonus, Rights, Split, Stock  Government securities  Instruments declared by Cen. Govt.  Rights or interest in securities

June 14, 2009

Rajesh

SPECIFIC ASPECTS        

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

June 14, 2009

Rajesh

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

PERIOD OF HOLDING 

Relevance for shares, etc.-concessional period

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Date of acquisition-Allotment unless provided

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12 months completed on-preceding date

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12 months– according to British calendar

June 14, 2009

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

June 14, 2009

Rajesh

COST OF ACQUISITION    

Not defined Commercial man Acc. Principles Brokerage  Stamp duty  Legal charges  Service tax  Insurance

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Private placement funding

June 14, 2009

Rajesh

INTEREST AS A PART OF COA 

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Difficulty due to exemption u/s 10(34), 10(35) S. 48 COA One view

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

June 14, 2009

Other view  Revenue nature  Subsequent payment & cost

Rajesh

DEMATERIALISATION 

Concept  Depository  DP  DRF

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

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

June 14, 2009

Rajesh

INDEXATION   

Bonds and Debentures Amalgamation and Demerger Annual Interest Capitalisation Difficulty

June 14, 2009

Rajesh

LTCG EXEMPTION – S. 10(38)  

New regime of STT Condition for compliance Capital asset Equity Shares EOMF units Held as investment Transfer on or after 01.10.2004 Transaction of transfer liable to STT LTCA Sale essential

June 14, 2009

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 Company  Originally bonds, warrants, etc,  Inheritance, amalgamation, demerger

June 14, 2009

Rajesh

IMPLICATIONS- S. 10(38) 

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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

June 14, 2009

Rajesh

IMPLICATIONS- S. 10(38) 

EOF Investment in equity shares 50% of total proceeds – Proceeds ? Shares of domestic company Specified u/s 10(23D) Annual average of monthly average Date of determination not clear Payment of STT

June 14, 2009

Rajesh

CONCESSION - STCG – S. 111A 

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Capital asset Equity Shares Units of EOMF STCA 10% of gains + SC + EC STT not deductible Other deductions possible

June 14, 2009

Rajesh

STCG- s. 111A     

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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 All Assessees

June 14, 2009

Rajesh

STCG – s. 111A 

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Rebate Exclusion from Rs. 5,00,000/- GTI Losses Option not to set-off Whether set-off of other losses possible Cir. No. 721 dated 31.09.1995 Script wise calculation Whether STCL can be set-off

June 14, 2009

Rajesh

SECURITIES TRANSACTION TAX (STT)   

Nature of Tax Effective date Applicability Shares of & EOMF ‘Shares’ & ‘Securities’ excluded Transaction on a recognized stock exchange Transactions excluded Delivery and Non Delivery Purchase and/or sales Persons covered

June 14, 2009

Rajesh

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 Rajesh common business

June 14, 2009

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

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COA -Amount actually paid  COA of entitlement if any

June 14, 2009

Rajesh

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

June 14, 2009

Rajesh

BUY-BACK      

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

June 14, 2009

Rajesh

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

June 14, 2009

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 II  DOA of Part I  Substitution of FMV possible  Craig Harvey’s case  Indexation possible

June 14, 2009

Rajesh

REDEMPTION / REDUCTION   

Concept Transfer Effect of transfer

June 14, 2009

Rajesh

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

June 14, 2009

Rajesh

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

June 14, 2009

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

June 14, 2009

Rajesh

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

June 14, 2009

Rajesh

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

June 14, 2009

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)

June 14, 2009

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)

June 14, 2009

Rajesh

DERIVATIVES-I  

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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

June 14, 2009

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

June 14, 2009

Rajesh

DERIVATIVES-III-CAPITAL GAINS 

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Underlying Assumptions  Right an asset  Fictional purchase & sale  Merges with a larger asset Situations  Cash settled  Hedging  Delivery settled Short-Term Capital Asset Lapse of contract

June 14, 2009

Rajesh

BUSINESS OF SHARES & SECURITIES 

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Difficulty in distinguishing On going battle Adv. & disadv Tests

 Bank account  Stationery  Business set-up  Accounting treatment  Realisation of old investment  Agency related  Takeover of interest  Public offer  Time devoted  Composition of income

 Regular  Systematic  Continuous  Length of holding  Intention  Borrowed funds June 14, 2009

Rajesh

INVESTMENT V. STOCK 

Which is beneficial  Allowance of expenses . Concessions  Application of s. 14A  Set-off of losses  Credit for STT  C/f of losses

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

June 14, 2009

Rajesh

ARBITRAGE   

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Nature of activity Objectives Income  Business -Capital Gains – Other sources Speculative transactions  Delivery - Hedging Losses  S. 43(5) - Explanation to s. 73 Expenses Credit for STT Tax Audit

June 14, 2009

Rajesh

DAY TRADING    

Nature of operations Volume , Frequency Delivery STT

June 14, 2009

Rajesh

PORTFOLIO MANAGEMENT 

Types of arrangements  Participating  Non participating

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Nature of fees  Advisory & Management  Brokerage

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Relationship & Treatment  Proposal under consideration  Deductibility of expenses  Business  Capital gains Rajesh

June 14, 2009

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

June 14, 2009

Rajesh

SPECULATION BUSINESS-II       

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

June 14, 2009

Rajesh

THANK YOU

June 14, 2009

Rajesh