CBDT gives capital gains tax break to rescue erring companies
PremiumThe exemption is from a provision in the Income Tax Act, which says that if shares are sold for a discount, the difference in the selling price and its fair value will be liable for capital gains in the hands of the seller
New Delhi: The Central Board of Direct Taxes (CBDT) has notified capital gains tax relief for sale of shares in companies when a court orders its restructure after the government replaces board of directors for mismanagement.
The exemption is from a provision in the Income Tax Act, which says that if shares are sold for a discount, the difference in the selling price and its fair value will be liable for capital gains in the hands of the seller. This exemption complements a relief notified earlier in the week that exempts taxation of share price discount in the hands of the acquirer. The move seeks to make restructuri of such companies viable.
The latest notification dated 30 June—the Income-tax (15th Amendment) Rules—says that the fair market value of shares calculated under section 50 CA of the Income Tax Act will not be taken into account for calculation of capital gains under section 48.
In a similar move, the Board had given waiver to investors from taxation of discounts in share price in the hands of the recipient under the Income-tax (14th Amendment) Rules, 2020 notified earlier in the week.
Both the benefits are applicable in cases where the National Company Law Tribunal (NCLT) has replaced the board of directors of a company on a petition by the central government and the shares of the company are acquired as part of the court approved rescue plan.
This is expected to encourage investors to participate in cases where mismanaged companies are restructured under the oversight of the tribunal.
