New Delhi: The government has extended the indexation benefit for computing tax liability on sale of unlisted shares though capital gains arising from such transactions will continue to be taxed at 20 per cent.

The indexation benefit - which takes into account the impact of inflation on acquisition cost - will not be available on gains made from sale of listed securities, according to the amendments to the Finance Bill 2018, which was passed by the Lok Sabha on Wednesday.

After a gap of 14 years, this year's budget had reintroduced the 10 per cent tax on long-term capital gains (LTCG) exceeding Rs 1 lakh from sale of listed shares.

At present, a 15 per cent tax is levied on capital gains made on sale of shares within a year of purchase. LTCG tax is nil for shares sold after a year of purchase. LTCG on sale of unlisted shares is taxed at 20 per cent, while in case of short-term capital gains it is 30 per cent.

Finance minister Arun Jaitley's 21 amendments to the Finance Bill, which contains taxation proposals for 2018-19, were approved by voice vote, and so was the Appropriation Bill, which detailed spending plans for 99 government ministries and departments.

With the passage of the Finance Bill and the Appropriation Bill, the budget exercise is complete in the lower house. It is probably the first time in recent years that the Lok Sabha had not discussed and voted even a single ministry's demand for grants. Union budgets were passed without discussion in 2003-04 and 2013-14 when, like on Wednesday, all demands were guillotined.

Addressing the concerns of investors on capital gains on the sale of unlisted shares that get listed after January 31, the Finance Bill says the indexed cost of acquisition shall be considered for the purpose of computing capital gains.

"The indexation benefit would surely help increase acquisition cost of unlisted shares in line with inflation over the holding period for the purpose of tax calculation, thus reducing the capital gains amount and the tax levied on the gains. However, this change has only partly addressed the concern as the cost inflation index may not account for the rise in the fair market value of such shares," Rakesh Nangia, managing partner, Nangia & Co LLP, said.

Rajiv Chugh, tax partner, EY India said: "The fair market value of shares which are unlisted on January 31, 2018 but are listed on the date of transfer shall be indexed cost of acquisition."

PPF accounts exempt

The government also introduced an amendment to ensure that the Public Provident Fund (PPF) accounts are not attached in case of loan default.

Nangia & Co director (direct taxation) Shailesh Kumar said: "The amendment intends to protect the retirement benefits/social security of such a person, who may have defaulted in repayment of debt for any circumstantial reasons."

Google tax loopholes

The amendments also plugged a loophole in the Google Tax. The Finance Act now provides that the "transactions or activities shall constitute significant economic presence in India, whether or not the agreement for such transactions or activities is entered in India".

The Finance bill had proposed that digital players such as Google and Facebook must pay taxes in India on income generated from Indian consumers even if the company's infrastructure was physically located abroad.

"Foreign companies used to say that the agreement to sell the goods or services was concluded outside India and hence the economic activity had taken place outside India. This plea shall not stand the water anymore," Nangia said.