Long-term capital gains on transfer of equity shares or units of an equity oriented mutual fund or a unit of a business trust covered by securities transaction tax [Section 10(38)]

Long-term capital gains arising on transfer of securities are not chargeable to tax in the hands of any person, if following conditions are satisfied:

1. The asset transferred should be equity shares of a company or units of an equity oriented
   mutual fund or a unit of a business trust.
2. The transaction should be liable to securities transaction tax, at the time of transfer.
3. Such asset should be a long-term capital asset.
4. Transfer should have taken place on or after October 1, 2004.
   Equity oriented mutual fund means a mutual fund specified under section 10(23D) and 65% of its investible funds, out of total proceeds are invested in equity shares of a domestic company.
   Note:
   (1) With effect from 1-4-2016, exemption from capital gains under Section 10(38) shall be
   available even in respect of long-term capital gains arising from transfer of units of a
   business trust which were acquired in lieu of shares of special purpose vehicle as referred to
   in section 47(xvii) and on which securities transaction tax has been paid.
   (2) Exemption from long term capital gains under section 10(38) shall be available w.e.f April
   1, 2017 even where STT is not paid, provided that –

• transaction is undertaken on a recognised stock exchange located in any International
  Financial Service Centre, and
• consideration is paid or payable in foreign currency
• 
  (3) With effect from the assessment year 2018-19, exemption under section 10(38) will not be
  available even if STT is paid at the time of transfer if the following conditions are satisfieda.
  Long-term capital gain is arise from transfer of equity shares in a company.
  b. The shares were acquired on or after 1/10/2004.
  c. At the time of acquisition of shares, the transaction was not chargeable to security
  transaction tax.
  d. The transaction of acquisition shouldn’t be a notified transaction. The Central
  Government will notify certain transaction to protect the exemption in genuine cases.
  4) No exemption under section 10(38) is available with effect from Assessment Year 2019-20.
  The long-term capital gains arising from sale of listed securities in excess of Rs. 1 lakh is
  taxable at the rate of 10% under Section 112A (subject to certain conditions).

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Disclaimer: The above article is only for information purpose and is on based on the author’s interpretation of the relevant provision. The same should not be considered as professional advice.