The Income Tax (I-T) Department is conducting an extensive investigation probe into potential tax evasion related to unlisted share transactions, as per a report by The Economic Times. The investigations are related to cases where promoters, their anchor investors, and their anchor investors have acquired unlisted shares before a company’s public listing and have later offloaded them through offers for sale (OFS).
Probe on share valuation methods
In the last ten days, tax authorities have sent several notices to investors across various cities. The department has asked for explanations of how to find out the acquisition cost of these unlisted shares and about the capital gains as reported after the sale. Officials have a doubt many investors have inflated their acquisition cost by using an overly high fair market value (FMV) instead of the actual real price. By practicing this method, it would have permitted them to significantly lower their taxable capital gains.
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As per the report, industry experts have suggested that the tax department is just not restricting its inquiry to capital gains understatement but is also probing the nature of these transactions.
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The department is scrutinizing all the transactions that took place before February 1, 2018, where shares were sold later in companies that went public between early 2018 and July 2024. The FY25 budget has launched amendments on how costs are calculated, which could result in the reassessment of tax returns filed earlier.
A tax official has confirmed to The Economic Times that many inquiries are on capital gains declared under Section 55(2) (ac) of the Income Tax Act.
Authorities have also asked for company records along with stock allotment dates, subscription payment dates, and names of the investors. The I-T Department is also cross-checking these allotment dates with records from the Ministry of Corporate Affairs (MCA) to find out whether these transactions were approved by company boards.
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