New Delhi: Seeking to simplify the procedure and
promote ease of doing business, CBDT has said capital gains tax will be
computed from the date of acquisition of financial instruments like
bonds and debentures and not from the date of their conversion into
shares.
Tax experts said the notification issued by the Central Board of Direct
Taxes (CBDT) would facilitate
mergers and acquisitions and promote
investments.
According to experts, it will also put an end to litigation between tax
authorities and companies with regard to the date of acquisition for the
purpose of computation of capital gains tax.
CBDT in a notification said that "in the case of a capital asset, being a
share or debenture of a company, which becomes the property of the
assessee... there shall be included the period for which the bond,
debenture, debenture-stock or deposit certificate was held by the
assessee prior to the conversion".
There have been disputes on this front, with the revenue authority
insisting that the date of conversion of debentures into shares was a
relevant date while the assessees wanted that the capital gains should
be computed from the period of acquisition of the financial asset.
KPMG (India) Partner Tax Vikas Vasal said this clarification is a
welcome move and will avoid disputes on the period of holding for
determining capital gains.
"The clarification will help in mergers and acquisitions, besides
promoting ease of doing business, wherein various instruments are issued
to meet the requirements of the investors," Vasal said.
"There will also be greater certainty about taxation based on the period
of holding of the specified financial instruments, which had been a
subject of litigation between revenue department and assessee."
Nangia & Co Managing Partner Rakesh Nangia said such measures of the
government to reduce tax litigation without significantly impacting the
revenue collection would lead to "a tax-simplified India".
"Predictability and certainty in tax laws infuse the much-needed
confidence in taxpayers, both domestic and foreign, and shall have a
ripple effect on the growth of Indian economy as a whole," he said