NEW DELHI: As per the amended income tax rules, the Central Board of Direct Taxes (CBDT) has expanded the scope of a tax exemption on shares received below fair market value in order to promote strategic disinvestment of public sector enterprises.

On Thursday, May 1st  the Income-tax (Eighth Amendment) Rules, 2023 were released, and they take effect on April 1. As a result of this rule change, anyone who receives shares from a public business below their fair market value is exempt from the taxation of such discounted share issues under section 52(2)(x) of the Income Tax Act.

Currently, this exemption covers shares that a person has received from the federal or state government as a result of strategic disinvestment. That does not necessarily apply to the corporation issuing new shares, simply a share sale by the government. According to the modified clause, the exemption is valid for "any movable property, being equity shares, of a public sector company or a company, received by a person from a public sector company, the Central Government, or any State Government under strategic disinvestment." The rule modification essentially broadens the tax exemption's use.

The taxation of gifts and other items obtained without consideration or for insufficient consideration is covered by Section 56(2)(x) of the Income Tax Act. This can refer to cash, real estate, stock, securities, and other assets. Such assets can be subject to taxation under this section if they are acquired for nothing at all or for a sum that is significantly less than their fair market value. Additionally, the Income Tax Act lists the circumstances in which this rule does not apply.

Given that tax revenue receipts have been strong, the Centre is working on the strategic disinvestment of a number of enterprises but is not in a rush to sell state-owned businesses.

CBDT: The Central Board of Direct Taxes (CBDT) is a statutory body that functions as the apex direct tax authority in India. It operates under the Department of Revenue, Ministry of Finance. CBDT is responsible for administering various direct tax laws, such as the Income Tax Act, and ensuring their effective implementation throughout the country.

The main objective of CBDT is to formulate policies and guidelines for the taxation system in India. It sets the direction for the Income Tax Department and exercises control and supervision over its functioning. CBDT also plays a crucial role in the development and implementation of tax-related infrastructure, including electronic filing systems, taxpayer services, and efficient tax administration.

CBDT exercises its powers and functions through the regional income tax authorities, which are spread across various cities in India. These authorities are responsible for assessing and collecting direct taxes, conducting tax investigations, and resolving any disputes or appeals related to direct tax matters.

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