Amendment of Section 55 of the Act (WIDENING AND DEEPENING OF TAX BASE AND ANTI-AVOIDANCE)

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.... and transfer. 2. With the withdrawal of the exemption, a specific provision in the form of section 112A of the Act was inserted to tax long-term capital gains on transfer of equity shares on which STT is paid at the time of acquisition and transfer. Simultaneously, clause (ac) of sub-section (2) of section 55 of the Act was inserted to provide a special mechanism for computation of cost of acquisition in respect of assets covered under section 112A of the Act and acquired prior to 01 February 2018. 3. The cost of acquisition under clause (ac) of sub-section (2) of section 55 of the Act, for an asset referred to in section 112A is to be determined as per the following formula: Higher of (a) and ( b), where: (a) Actual cost of acquisit....

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....ition of payment of STT was relaxed for transactions of acquisition which are not chargeable to STT other than some exceptional situations defined. As a consequence, the payment of STT at the acquisition is not required for unlisted equity shares. 6. Due to this relaxation, a lacuna has arisen in computation of cost of acquisition under clause (ac) of sub-section (2) of section 55 of the Act in the case of equity shares transferred under Offer-For-Sale (OFS) as part of Initial Public Offering (IPO) process where STT is paid at the time of transfer. Since the condition of STT payment at the time of acquisition is relaxed through the aforementioned Notification, it becomes an asset referred to under section 112A. Hence, for determination of ....