Hello! Can someone please exlain why a promoter will sell shares at market price and then buy them through a privately held company where the same person is a Director? What could be the reasons? Isn’t there a better way to accomplish transfer of shares from an individual to a private limited company than seeling and buying back? Is it to manage tax implications? Thanks in advance!
This is for Nandan Denim.
Deal Date Client Name Deal Type Quantity Price
23 Mar 2017 NANDAN TERRY PRIVATELIMITED P 300000 116.00
23 Mar 2017 BRIJMOHAN DEVKINANDAN CHIRIPAL S 300000 116.00
22 Mar 2017 NANDAN TERRY PRIVATELIMITED P 300000 112.50
22 Mar 2017 BRIJMOHAN DEVKINANDAN CHIRIPAL S 300000 112.50
A lot of block deals and promoters moving around shares from the day the budget this year was announced. This was around exemption of tax on long term capital gain on equity investments.
“With a view to preventing this abuse, it is proposed to amend section 10(38) to provide that exemption under this section for income arising on transfer of equity shares acquired or on after October 1, 2004 shall be available only if the acquisition of shares is chargeable to STT,” the budget memorandum states.
What this means is that if someone had acquired stocks without paying STT after 2004(bonus, IPO, any other corporate action) and if they sell the stocks tomorrow, there will be tax applicable on LTCG. So I am guessing promoters are moving around these shares and paying STT on the exchange in the process to ensure LTCG gains continue to remain exempt for them.