Budget 2018 LTCG Tax of 10% on Stocks and Mutual Funds

After Budget 2018 LTCG TAX has raised a lot of question in the minds of an equity investor, an Existing investor who has been able to invest in equities for a long time is still not aware of the actual calculations in LTCG TAX on their investments. Investor assuming that they will have to pay 10% tax on the actual capital gain on sale of stocks or equity mutual funds.

Today, we will try to explain to you through this blog post how to calculate long-term capital gain tax for the financial year 2018-2019.

First of all, it is necessary to understand what is LTCG TAX

Gains from Capital Assets are called Capital Gains – these may be Long-Term or Short-Term Capital Gains depending upon the holding period. Usually, assets held for 24 months or less are termed short-term capital assets and gain on their sale is short-term capital gain. There are a few exceptions here – some assets are considered short-term when held for 12 months or less. Assets sold after 24 months are called Long Term Capital Assets.

For example – Land held for more than 2 years is termed as the long-term capital asset, Equity Funds are considered short-term when held for 12 months or less, whereas Debt Funds are long-term assets when held for more than 24 months. Therefore, it’s important to find out the specific holding period applicable to your asset, since it impacts how the capital gains will be calculated.

So, in equity mutual funds or stocks which is held more than 12 months are considered a long-term capital asset and the profit arises on a sale of these assets are called as long-term capital gain. Govt. introduced in BUDGET 2018 LTCG TAX of 10% if the gain exceeds Rs 100,000 without allowing the benefit of indexation.

However, all gains until 31st January 2018 will be grandfathered and short-term capital gains remain unchanged at 15 percent.

For example, If the equity share/mutual fund is purchased 6 months before 31st Jan 2018 (i.e. 31st July 2017) at Rs 10,000 and the highest price quoted on 31st Jan 2018 is Rs 12000. There will be no tax on the sale if the stock or fund sold after 1 year.

However, any gains in excess of Rs 2000 earned after 31st Jan 2018 will be taxed at 10% if this share /Mutual fund(equity) is sold after 31st July 2018.

Till now any long-term capital gain generated (if you sold equity/equity Mutual fund after 1 years of holding) were exempt from tax in the hands of individual’s hand. Budget 2018 proposes to levy a 10% tax plus education and health cess (health education cess introduced this year in finance bill 2018, earlier education cess was 3% but now it is revised to 4%) on these gains.

However, there are 2 factors which need to consider before taking any decision on the sale of stocks or equity Mutual funds.

• As per the proposed Budget 2018, if you sell equity or equity oriented Mutual fund (held for more than 1 year) before 31st March 2018, then there will be no tax levied on a long-term capital gain. The new tax regime will be effective from 1st of April 2018.
•  In Budget 2018 LTCG TAX will be exempted up to 1 lakh per annum, if you Realized the capital gain on selling of shares or equity mutual fund after 31st March 2018 i.e. the new LTCG tax of 10% would be levied only on LTCG of an individual’s exceeding Rs 1 lakh in fiscal. For example, if your LTCG is 1,75,000 in a financial year then you need to pay tax on Rs 75,000 only.

BUDGET 2018 LTCG TAX COMPUTATION CHART

MY VIEW ON BUDGET 2018 LTCG TAX

After this Budget, equity investors will not be happy with long-term capital gains tax. Still, investor’s primary intent is to save tax on investment in Equity. But I believe the primary purpose to invest in equity is to accumulate the corpus for your goal which you align for your investments, tax saving may be a secondary reason to invest in equity because equity only can give you inflation adjusted decent returns in the long term.

Do you believe this budget proposal will have a negative impact on equity or mutual funds, will inflow in equity or mutual funds stop after BUDGET 2018 LTCG TAX OF 10%, kindly share your views !!