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Budget 2018: High tax payout in LTCG on share of unlisted companies, ESOPs

Online assessment and scrutiny should be implemented in a phased manner as most of the tax practitioners are not well conversant in written communication

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Employees availing stock options or sales of stocks of unlisted companies after April 1, 2018, will result in higher Long Term Capital Gains as the market price of these stocks on January 31 cannot be determined, said tax experts. They also said that online assessment and scrutiny should be implemented in a phased manner as most of the tax practitioners are not well conversant in written communication, which could create misunderstanding between the tax official and the assessee.

Finance Minister Arun Jaitley had proposed a Long Term Capital Gains (LTCG) in the budget with a condition that the maximum price of the stock on January 31, 2018 on the stock exchanges will be considered as reference price for determining gains, if any. However, the provision will also apply to stocks of unlisted companies or companies who have offered Employee Stock Ownership Plan (ESOP), which would be encashed after April 1, 2018.

"While the grandfathering clause will be applied to stocks that are listed, what about stocks that have been listed or coming up with an Initial Public Offer (IPO) later on. They will have to pay entire LTCG, that is the rise from price at which the stock was offered to the price at which it was sold," direct tax expert, Saurabh Soparkar said during a post budget discussion at GCCI on Saturday.

He also said that while the intention behind the e-assessment and e-scrutiny of Income Tax Returns is to introduce transparency and reduce human interface, the system should be implemented in a phased manner with large corporates to be brought under the umbrella in the initial phase and then introduce it in a phased manner. 

"Now drafting of the reply will be very critical. Large corporates have a team of tax experts to do this. But most of the tax practitioners in the country still need to be equipped in this skill. If there is a misunderstanding between the official and the assessee, people will go mad," said Soparkar.

He said that the budget will neither give a boost to the growth of the economy or hinder it. However, he acknowledged that there are no announcements in the budget that have retrospective effect.

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