The Finance Act of 2017 had amended Section 10(38) of the Income
Tax Act, 1961 ("IT Act") to the effect
that long term capital gains ("LTCG")
from transfer of equity shares of companies listed on stock
exchanges, would be exempt from tax only if securities transaction
tax ("STT") was paid at the time of
acquisition of such shares
("Amendment"). Prior to this change, any
LTCG arising from sale of equity shares was exempt from tax if STT
was paid at the time of such sale. Thus pursuant to the Amendment,
exemption from LTCG tax would be limited to cases where STT was
paid in both legs of purchase and sale of equity shares.
The Amendment is part of a string of Governmental actions
seeking to curb unaccounted income and black money. The memorandum
to the Finance Bill mentioned that the exemption provided under
Section 10(38) was being misused by certain persons for declaring
their unaccounted income as LTCG by entering into sham
transactions; and hence, the above step
