Finance Act, 2017

Some of the key amendments introduced to the ITA by Finance Act, 2017 are:

i. Conversion of preference shares into equity shares will not be regarded as transfer and will be exempt from capital gains tax. Further, cost of acquisition and period of holding of the preference shares will be attributable to the equity share received upon conversion;

ii. Exemption from long term capital gains arising from transfer of equity share of a company that are chargeable to Securities Transaction Tax (‘STT’) will be available only if the acquisition of such shares was also subject to STT. Further, to protect some of the genuine transactions (e.g. acquisition pursuant to IPO, FPO, bonus or rights issue by a listed company, by non-resident as per the FDI Policy etc.), the GoI will notify transfers to which the proposed condition of chargeability of STT on acquisition will not apply;

iii. If consideration for transfer of unlisted shares is less than fair market value (‘FMV’) determined as per the prescribed manner, such FMV will be deemed to be the full value of consideration for the purposes of computing capital gains;

iv. Indirect transfer provisions will not be applicable to investments held by a non-resident, directly or indirectly, in FIIs/ Category-I or Category II FPIs;

v. Domestic transfer pricing provisions will now be applicable only in cases where one of the related party to the transaction is availing tax holidays; and

vi. The scope of applicable tax on any deemed gift has been widened by extending its applicability to all ‘persons’ and extending the scope of properties to all ‘properties’, except contribution of money or assets by an individual to a trust created solely for benefit of relative of the contributor.