Detailed analysis of new taxation regime of LTCG proposed in Finance Bill 2018

While Finance Bill, 2018 introduced a new tax regime for taxation of on long term capital gain on specified class of asset, there has been a lot of confusion regarding applicability, tax ability and calculation of the same. Here in this article, I have tried to clarify the same along with the illustration.

Finance Bill, 2018 has proposed to withdraw the exemption u/s 10(38) of IT Act, 1961 i.e. “exemption on long Term Capital Gain on transfer of shares and securities covered under Security Transaction Tax (STT)” by introducing a new section 112A under the same Act. It is provided that long-term capital gains arising from transfer of such long-term capital asset exceeding one lakh rupees will be taxed at a concessional rate of 10 percent without allowing any indexation benefit from the AY 2019-20 i.e. from 1st April 2018. However, all gains up to 31st January, 2018 will be grandfathered i.e. FMV dated 31-01-18 will be taken into the consideration for calculation of cost of acquisition of shares.

The cost of acquisition for the long-term capital asset acquired on or before 31st of January, 2018 will be the actual cost.

However, if the actual cost is less than the fair market value of such asset as on 31st of January, 2018, the fair market value will be deemed to be the cost of acquisition. Further, if the full value of consideration on transfer is less than the fair market value, then such full value of consideration or the actual cost, whichever is higher, will be deemed to be the cost of acquisition.

It is simplified in illustration below.

Since the introduction of the Finance Bill, 2018 on 1st February, 2018, several queries have been raised in different fora on various issues relating to the proposed new tax regime for taxation of long-term capital gains. The responses to these queries are provided by CBDT vide F. No. 370149/20/2018-TPL  (can be downloaded) dated 04-02-18.

On the basis of FAQ and analysis following illustration will clarify all your doubts relating to the proposed new regime of taxation of LTCG.

Important Notes:

1. For LTCG under section 112A, assets are to be held for a minimum period of 12 months from the date of acquisition.

2. The holding period will be counted from the date of acquisition.

3. In case of a listed equity share or unit, the fair market value means the highest price of such share or unit quoted on a recognized stock exchange on 31st of January, However, if there is no trading on 31st January, 2018, the fair market value will be the highest price quoted on a date immediately preceding 31st of January, 2018, on which it has been traded. In the case of unlisted unit, the net asset value of such unit on 31st of January, 2018 will be the fair market value.

4. the long-term capital gain will be computed without giving effect of indexation

5. The proposed new tax regime will apply to transfer made on or after 1st April, 2018

6. The transfer made between 1st February, 2018 and 31st March, 2018 will be eligible for exemption under clause (38) of section 10 of the Act.

Disclaimer:– Every effort has been made to avoid errors or omissions in this Article. In spite of this, errors may creep in. Any mistake, error or discrepancy noted may be brought to the notice of author which shall be taken care of. It is clarified that author will not be responsible for any damage or loss of action to any one, of any kind, in any manner, therefrom. It is suggested that to avoid any doubt the reader should cross-check all the facts, law and contents of the Article with original Government publication, notifications or may seek department clarification in this regard.

This article is only for educational and guidance purpose and do not hold any legal validity.Your feedback is valuable

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