Promoters' Exit Through OFS Under Income Tax Lens — Profit Exclusive

Highly placed source told NDTV Profit that the Income Tax Department is probing 216 OFS deals, of which 86 were listed in the last fiscal alone.

“Direct tax body CBDT has rolled out a nationwide special drive, (with the) aim to identify discrepancies in capital gains reporting and uncover any potential tax evasion tactics," a senior tax official told NDTV Profit.

In a letter dated Feb. 3, the Central Board of Direct Taxes, or CBDT, instructed its field formations to prioritise these OFS investigations to check for potential tax evasion as it observed discrepancies in the revised return filed by promoters and investors.

Highly placed source told NDTV Profit that the Income Tax Department is probing 216 OFS deals, of which 86 were listed in the last fiscal alone.

“Direct tax body CBDT has rolled out a nationwide special drive, (with the) aim to identify discrepancies in capital gains reporting and uncover any potential tax evasion tactics," a senior tax official told NDTV Profit.

In a letter dated Feb. 3, the Central Board of Direct Taxes, or CBDT, instructed its field formations to prioritise these OFS investigations to check for potential tax evasion as it observed discrepancies in the revised return filed by promoters and investors.

Data for this investigation has been sourced directly from the National Stock Exchange and the Bombay Stock Exchange. CBDT is leveraging this data to cross-check reported information against actual market prices. The probe falls under Section 55(2)(ac) of the Income-tax Act, which pertains to the determination of capital gains in cases where shares have been sold at a profit.

NDTV Profit reviewed the CBDT letter and data of companies that opted for OFS, circulated with tax sleuths for detailed examination.

OFS transaction by 24 companies in fiscal 2021, 56 in fiscal 2022, 50 in fiscal 2023, and 86 in fiscal 2024 are under the lens.

Sources said tax department issued notices to several promoters and investors in past 10 days seeking explanation over determination of capital gains.

These notices followed discrepancies found in revised returns, specifically regarding mismatches in reported capital gains. The tax authorities are now closely examining the methodology used by these individuals to calculate their acquisition costs and gains.

A tax expert says that there has been a contention over the cost of acquisition which was clarified in July 2024 Budget.

“The July 2024 Budget had clarified that in case of OFS, the cost of acquisition would be deemed to be the indexed cost considering the cost inflation index between date of purchase and financial year 2017-18," said Rajesh Gandhi, partner, Deloitte India.

Gandhi explained that the Budget 2024 amendment therefore impacts tax calculations in case of sale of shares under OFS where the sellers either treated the gains from OFS as exempt from tax on the argument that the computation mechanism failed or paid lesser tax by considering the Fair Market Value of such shares.

The move is part of the government’s broader effort to ensure greater transparency in the capital markets and hold investors accountable for their tax filings.

The investigations will continue throughout the fiscal year, with the CBDT aiming to uncover any improper tax practices and ensure that the correct amount of taxes are paid.