The Easwar Panel’s recommendation that gains of up to ₹5 lakh from sale of shares in bourses be treated as only ‘capital gains’ will go a long way in avoiding litigation, say tax experts. Identifying areas that often gave rise to litigation on account of interpretative differences was one of the important mandates for this 10-member panel that was set up by the Centre in October last year.
Characterisation of income from sale of shares in bourses was one such issue, they pointed out. If this recommendation is included in the upcoming Budget, it will provide relief to small taxpayers and avoid litigation on the characterisation issue — whether the surplus should be treated as business income or capital gains, Vikas Vasal, Partner, KPMG, told BusinessLine .
Aseem Chawla, Partner, MPC Legal, a law firm, said the Easwar panel’s recommendation intends to do away with avoidable litigation on income characterisation. However, this needs to be thought through, as there is no clarity on whether the recommendation applies to all kinds of securities — listed or otherwise, he added.
“Very often, earnings that are offered to tax as capital gains are challenged by the tax authorities as being the same as business income. The committee has recognised that this has been a perennial source of dispute and firm guidance is not available, leading to uncertainty. Since the threshold is ₹5 lakh, it is a good, small step,” Chawla said. The Easwar panel has suggested that gains arising from sale of securities held for less than 12 months up to ₹5 lakh in a financial year be treated as ‘capital gains’, not ‘business income’.
The tax department has on several occasions treated such gains as ‘business income’ even if the holding period of such securities had been less than 12 months.