Finance Minister has reintroduced Long Term Capital Gain taxation (LTCG) during budget speech on 1st February 2018. The Government has introduced tax for long term capital gains exceeding Rs.0.1 million (Rs. 1Lakh) at the rate of 10% without allowing the benefit of any indexation for equities. Also the Government will introduce a tax on distributed income by equity oriented mutual fund at the rate of 10%.
Finance Minister has mentioned during budget speech that “I propose to tax such long-term capital gains exceeding Rs 1 lakh at the rate of 10% without allowing the benefit of any indexation. However, all gains up to 31st January 2018 will be grandfathered.”
Should you book LTCG before 31st March?
The answer to whether one should book LTCG before 31st March 2018 for gaining exemption on tax is determined by whether you want to hold on to your stock/mutual fund units for long term or take profits now. If you want to book profits, you should sell before 31st March 2018.
If you want to hold on for long term, then you need not do anything as it just involves transaction costs and price risk on Sell and Buy. Given that all gains until 31st January are exempt from LTCG, your cost of acquisitions hereon is automatically readjusted to 31st January 2018 price, assuming that the price of the security is higher than acquisition cost or cost of purchase.
If you sell your equity shares or equity MF units (held for more than one year) before 31st March 2018, you can still claim tax exemption on long term capital gains. The new tax regime for LTCG is effective for transactions done from 1st April 2018.
How is Cost of acquisition/LTCG is calculated if you sell shares post 1st April 2018?
- The cost of acquisition of the equity share or equity fund unit bought before 1st February 2018, will be the higher of the following:
- a) the actual cost of acquisition of the equity share or equity fund unit
- b) The lower of: (i) Highest price of share on stock exchange on 31st January 2018. (NAV of unit in case of a mutual fund unit) and
(ii) The sale value received when the share/unit is sold.
Therefore, cost of acquisition is determined as per formula explained above, this cost will be subtracted from the sale value and the LTCG (10% of the capital exceeding Rs. 0.01 million/ Rs.1 Lakh) will be calculated.
Set Off of Long term Capital Loss against Long term Capital Gains?
Yes, Long-term capital loss arising from transfer made on or after 1st April 2018 will be allowed to be set-off and carried forward in accordance with existing provisions of the Act. Therefore, it can be set-off against any other long-term capital gains and unabsorbed loss can be carried forward to subsequent eight years for set-off against long-term capital gains.
Scenario Analysis of LTCG Taxation: