QUESTION: I am an investor, who sold my equity shares in Ranbaxy Lab Ltd. to a Japanese acquirer in September 2008 both physical and demat in “off-market” mode.

These were held by me for more than one year. In this “off-market” mode, I did not pay the STT on transfer. Can I pay tax in lieu of the STT? Kindly advise whether I am entitled for full exemption for long term capital gains? If taxable what will be the rate of tax?

ANSWER: Long term capital gains are taxable at 20 per cent flat rate with right to indexation of the cost with rerolling benefit under section 54EC in specified bonds or a residential house property under section 54F both subject to conditions.

Section 10(38) exempts long term capital gains on equity shares, where such transfer is chargeable to securities transaction tax, which is leviable on transactions entered in a recognised stock exchange and are settled by actual delivery. Where the sale is by “off-market” mode by exercise of the acceptance of offer by the acquirer of the shares in a company and securities transaction tax has not been charged, the normal tax as discussed in the preceding paragraph cannot be avoided.