Tax breather on disinvestment

New Delhi: The government has decided to exempt investors picking up state's equity shares under strategic disinvestment programme from the provisions of gift tax.

A notification issued by the Central Board of Direct Taxes (CBDT) has amended the Income-Tax Rules-1962 to provide that taxability of gift is not applicable on transfer of any movable property, being equity shares, of the public sector company, received by a person from the Central Government or any State Government under strategic disinvestment.

The provisions related to applicability of gift tax on transfer of movable property earlier included all such deals where the transaction amount was less than the fair market value of such equity shares.

The gap between fair market price and actual amount paid (should be less than FMP) was chargeable to gift tax. But in cases of strategic disinvestment where sale price has to consider a lot of other factors, the government thought it right to keep strategic sale of its shares in PSU out of the ambit of gift tax. Thus, the amendment provides relief to strategic investors from applicability of additional tax on payments made for picking up government's stake in public sector undertakings.