Sebi to keep tabs on fraudulent tax benefits

New Delhi : Regulator Sebi is mulling tightening its investigation and enforcement mechanism to check misuse of stock market platform for generating ‘bogus’ long-term capital gains to launder black money. The markets watchdog has also come across cases wherein fraudulent tax benefits have been claimed through trades in some blue-chip stocks, as against the common perception of only penny stocks being used as vehicles for such frauds, a top official said.

Keen on bogus claims of long-term capital gains laundering black money

While steps have been taken to check any unnatural rise or fall in share prices -- as seen in penny stocks misused by tax evaders -- the regulator is now also looking into cases of blue-chip stocks as the data suggest that 80-90 per cent of the long-term capital gains tax (LTCG) exemptions being claimed are for larger companies.

Last year, Sebi identified approximately 32,000 entities for further examination on suspicion of violating securities law to evade taxes. While the rules provide exemption from long-term capital gains through stock market trades, the government in this year’s Budget, announced steps to limit such benefits only to ‘genuine trades’ as part of a concerted effort to clamp down on tax evasion through ‘sham transactions.’

The regulator is now looking at further steps to ensure such benefits are available to genuine investors only as they are aimed at encouraging long-term investment culture in the country, the official said, while adding that some changes are required in the surveillance and enforcement mechanism.