Seeking to simplify the procedure and promote ease of doing business, CBDT has said capital gains tax will be computed from the date of acquisition of financial instruments like bonds and debentures and not from the date of their conversion into shares.

Tax experts said the notification issued by the Central Board of Direct Taxes (CBDT) would facilitate mergers and acquisitions and promote investments.

According to experts, it will also put an end to litigation between tax authorities and companies with regard to the date of acquisition for the purpose of computation of capital gains tax.

CBDT in a notification said that "in the case of a capital asset, being a share or debenture of a company, which becomes the property of the assessee... there shall be included the period for which the bond, debenture, debenture-stock or deposit certificate was held by the assessee prior to the conversion".

There have been disputes on this front, with the revenue authority insisting that the date of conversion of debentures into shares was a relevant date while the assessees wanted that the capital gains should be computed from the period of acquisition of the financial asset.

KPMG (India) Partner Tax Vikas Vasal said this clarification is a welcome move and will avoid disputes on the period of holding for determining capital gains.

"The clarification will help in mergers and acquisitions, besides promoting ease of doing business, wherein various instruments are issued to meet the requirements of the investors," Vasal said.

"There will also be greater certainty about taxation based on the period of holding of the specified financial instruments, which had been a subject of litigation between revenue department and assessee."

Nangia & Co Managing Partner Rakesh Nangia said such measures of the government to reduce tax litigation without significantly impacting the revenue collection would lead to "a tax-simplified India".

"Predictability and certainty in tax laws infuse the much-needed confidence in taxpayers, both domestic and foreign, and shall have a ripple effect on the growth of Indian economy as a whole," he said.