NEW DELHI: The government will keep all transactions recognised by the Securities and Exchange Board of India ( Sebi ) outside the ambit of a new rule introduced in this year’s Budget that provides for the imposition of capital gains tax if securities transaction tax (STT) has not been paid.The final notification of the rule, which is in the works, will ensure that genuine investments such as employee stock options (Esops) and off-market strategic acquisitions do not face tax.The draft notification rule had not addressed these issues, leading to representations to the Central Board of Direct Taxes (CBDT), which is now examining the points raised, a government official said.“There have been representations... The idea is not to tax genuine transactions,” he said. “All transactions recognised by Sebi will be kept out.”The draft notification issued on April 3 listed 3 types of transactions on which the rule will apply: Investments in listed stocks that are not traded frequently and the acquisition of equity through preferential issues not falling under Sebi issue of capital and disclosure norms.Transactions where the listed stock is not purchased over the exchange.Acquisition of shares in a company delisted and then re-listed. The Finance Act, 2017, amended the provisions of Section 10 (38) of the Income-Tax Act to curb the practice of declaring unaccounted income as exempt from longterm capital gains by entering into sham transactions.This implied that exemption from capital gains for income arising from the transfer of equity shares acquired on or after October 1, 2004, would only be available if the acquisition was chargeable to STT.To shield exemptions for genuine cases in which STT could not have been paid, it was provided that the government would notify situations in which the rule would not apply. But CBDT issued draft notifications specifying situations in which it would apply. Though the first and third provisions addressed key concerns, the second one on listed stocks not purchased over the exchange left the issue open-ended. Tax experts said if all purchases under Sebi regulations are covered, all genuine transactions will be exempted.“If CBDT exempts only those purchases which are approved by Sebi, it would restrict the benefit to only few types of acquisitions such as under merger/demerger schemes, rights issues, etc,” said Rajesh H Gandhi, partner, Deloitte Haskins & Sells LLP. “However, if all purchases covered under Sebi regulations are exempted, it would mean that most transactions including private placements, preferential allotments and Esops would also be exempt since these are covered by Sebi regulations though not specifically approved on a case-to-case basis.”