Modifications in Income Tax Act 1962 to stop Black Money from Entering Stock Exchange

The Income-Tax department in March 2011 for the first time asked stock exchanges to submit monthly reports of all transactions to stop black money from entering the share markets. Discrepancies to the tune of Rs 25 lakh crore were found in data analysed by the I-T department for the period between January and March 2009.

Following the findings of numerous discrepancies by the I-T department an amendment was made in the Income Tax Act 1962. According to the modification brought about Income Tax Act 1962, the stock exchanges will have to ensure that transactions in respect of cash and derivative market once registered in the system cannot erased. The stock exchanges should also ensure that transactions in respect of cash and derivatives segment once registered in the system are modified only in cases of genuine errors. Stock exchanges should include the transaction ID, broker name, name of the client, total value of transactions, scrip name, quantity, rate, PAN card of clients, among others. A detailed report will have to be submitted to the Director General of Income Tax (Intelligence) within 15 days from the last day of each month.

The SEBI had recently warned brokers that they will be penalised if there are changes in trade details of clients after execution.

A large number intermediaries were found making investments by rectification and correction in shares and derivatives leading to a huge mismatch in the information provided by share brokers to stock exchanges.