The Government is getting really serious in chasing black money. Yes, the Prime Minister has scrapped 500 and 1,000 rupee notes in the economy. Now there are plans of tracking Benami property holders, in the country. The Government is chasing penny stocks, used to hide black money. Let’s get real simple….The Government is chasing penny stocks, used to launder black money (hide black money). Penny stocks can help you evade taxes….Up to now. The Government plans to end this….
The Government had called a meeting with fund managers, exchanges, audit firms and consultants, to check if securities transactions tax popularly known as STT, could be removed, on low value stocks often called penny stocks. The Finance Ministry wants to remove/abolish, securities transactions tax on penny stocks.
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Penny stocks are stocks of low value. Investors and traders use penny stocks, to evade tax. The income tax department has unearthed (found out), tax evasion in excess of INR 45,000 crores, where penny stocks were used to evade taxes. Securities and Exchange Board of India (SEBI), helped the income tax department, find out about this tax evasion.
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If you invest in stocks, the profit/gains you make, if you sell stocks within a year, are called short term capital gains. Your short term capital gains are taxed at 15%. You have to pay STT. If you stay invested in stocks, for a time period more than a year, any gains/profits you make on selling stocks, are called LTCG (Long Term Capital Gains). You do not have to pay tax on your long term capital gains.
Yes…LTCG on stocks is tax free.
You get the tax benefits of LTCG (Long Term Capital Gains) on penny stocks, only if you pay STT (Securities Transaction Tax), on a recognized stock exchange, at the time of sale of stocks. STT is payable on the value of stocks transacted, on a recognized stock exchange. For the year 2016, STT is 0.1% for delivery based equity trading. If the Government abolishes STT on penny stocks, the benefits of LTCG disappear. Yes….there are no LTCG tax benefits, if you stay invested in penny stocks, for a year or more.
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The tax department claims, penny stocks are being misused by entities, to book fake LTCG gains. This is an excellent way to manipulate the stock market and evade taxes.
SEBI is investigating stock brokers and promoters of penny stock companies, for tax evasion. Several stock brokers and promoters of penny stock Companies, have declared illegal money, under the Income Declaration Scheme (2016). This money is just the tip of the iceberg…The tax department wonders how much more is hidden. The only way to catch these tax evaders…Abolish STT on penny stocks.
Yes…the Government is going after tax evaders in a big way. The next target could well be penny stocks. However in its eagerness to catch tax evaders using penny stocks to hide black money, the Government also needs to look after the interest of minority shareholders in penny stocks.
Mr. C S Sudheer is the founder and CEO of IndianMoney.com – India’s largest Financial Education Company. He started his career with ICICI Prudential Life Insurance and later on worked with Howden India. After his brief stint in Howden India, he moved on and incorporated Suvision Holdings Pvt Ltd which is the sole promoter of IndianMoney.com. He aims to build a nation that is financially literate with investment savvy citizens.
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