Arjuna (Fictional Character): Krishna, in the Budget, there are certain changes relating to Long Term Capital Gain. So, what are these changes?
Krishna (Fictional Character): Arjuna, This year the Budget suggests certain changes relating to Income tax. One of the important changes among that is Long Term Capital Gain on equity shars or equity oriented mutual funds. It means that if that long term capital gains arising from transfer of a long term capital asset being an equity share in a company or equity oriented mutual fund shall be taxed at 10 per cent. of such capital gains exceeding one lakh rupees. To calculate the actual gain, sales value and fair market value of asset as on 31st March, 2018 is to be taken in to consideration.
Arjuna: Krishna, until now, what were the provisions for these shares and mutual fund?
Krishna: Arjuna, Under the existing regime, long term capital gains arising from transfer of these equity shares or mutual funds was exempt from income-tax under section 10(38). It had encouraged diversion of investment in financial assets. It had also led to significant erosion in the tax base resulting in revenue loss. Therefore the decision to remove the exemption has been taken.
Arjuna: Krishna, Give the examples relating to the Long term capital gain on which income tax will be paid.
Krishna: Arjuna, following will be three situations relating to that.
1. Suppose, you have purchased the shares or mutual funds on 31st January, 2017, actual cost of which is Rs. 100000 as on date. The fair market value of the same as on 31st January, 2018 is Rs. 130000. If you sale those shares or mutual funds before 31st March, 2018 for Rs. 250000, then your actual gain will be Rs. 150000. But there is no need to pay tax on this gain as those shares are sold before 31st March, 2018.
2. Suppose, you have purchased the shares or mutual funds on 31st January, 2017, actual cost of which is Rs. 100000 as on date. The fair market value of the same as on 31st January, 2018 is Rs. 130000. If you sale those shares or mutual funds after 31st March, 2018 for Rs. 200000, then your actual gain will be Rs. 70000 (200000-130000). But as the gain is less than Rs. 100000, it will not be taxable.
3. Suppose, you have purchased the shares or mutual funds on 31st January, 2017, actual cost of which is Rs. 100000 as on date. The fair market value of the same as on 31st January, 2018 is Rs. 130000. If you sale those shares or mutual funds after 31st March, 2018 for Rs. 300000, then your actual gain will be Rs. 170000 (300000 – 130000). But you have to pay the tax on Rs 70000 (170000 – 100000). Therefore you have to pay Rs. 7000 (70000*10%) as tax on long term capital gain.
Arjuna: Krishna, how to calculate the fair market value of the asset as on 31st January, 2018?
Krishna: Arjuna, 1) in a case where the capital asset is listed on any recognized stock exchange, the Highest price of the capital asset quoted on such exchange on the 31st day of January, 2018. However, where there is no trading in such asset on such exchange on the 31st day of January, 2018 , the highest price of such asset on such exchange on a date immediately preceding the 31st day of January, 2018 when such asset was traded on such exchange shall be the fair market value
2) in a case where the capital asset is a unit and is not listed on recognized stock exchange, the net asset value of such asset as on the the 31st day of January, 2018.
Arjuna: Krishna, What lesson the taxpayer should take from this?
Krishna: Arjuna, All the taxpayers should pay tax according to the provisions of budget. Investors should keep with them the fair market value as on 31st Market value of shares. Because, liability of the long term capital gain will be calculated on this basis only.
Author Bio
I HAVE INCOME FROM pension from LIC pension scheme OF Rs 70000 and Interest income from deposits Rs 150000 and capital gain ( LONG TERM ) from sale of share Rs 150000. How to comput e my tax ?
I have purchased 100 shares of Sundaram Finance on 15.12.2012 – Holding in Physical form till last year.
The Fair Market Value of Shares as of 31.01.2018 was 1538.25 per share
I have opened Demat account and Dematerialised the share on 01.11.2020 in the same name as in the Certificate
I Have sold 14 shares at Rs.2130 per share and realised Rs.29834 on 12.02.2021
I assume it attracts only Long term Capital gain since I am holding the shares for more than a year and the Purchase price is to be taken as of 31.01.2018 i.e. Rs.1535.25 per share i.e.(2130-1538.25)
Kindly clarify, please
Sir,
I have purchased 100 shares of Sundaram Finance on 15.12.2012 – Holding in Physical form till last year.
The Fair Market Value of Shares as of 31.01.2018 was 1538.25 per share
I have opened Demat account and Dematerialised the share on 01.11.2020 in the same name as in the Certificate
I Have sold 14 shares at Rs.2130 per share and realised Rs.29834 on 12.02.2021
I assume it attracts only Long term Capital gain since I am holding the shares for more than a year and the Purchase price is to be taken as of 31.01.2018 i.e. Rs.1535.25 per share i.e.(2130-1538.25)
Kindly clarify, please
Sir , one of my client have purchased 50 SBI shares long back in 1994 at ₹100/share . After split in November 2014 it become 500 shares(1:10). As per section 112A, in case of long term capital gain the purchase price of the shares shall be highest of (1) original cost or (2) fair value (being the highest price of the share on 31.01.2018) . So my query is , for calculating the fair value whether we should multiply 50 shares or 500 shares with the highest as on 31.01.2018
For the FMV of equity shares, should one take the price quoted in BSE or NSE, or are we free to take from any of these?
An excellent article but where (or how) would one find the fair market value of one’s shares on 31 January 2018?
MY ASSUMPTION- SAY YOU BUY THE STOCK[LISTED] FOUR YEARS BACK ON 15TH JULY. NOW SALE THE SAME ON 2ND FEB,2018. THE LAST TRADING DATE OF THE STRIP , SAY 28TH JANUARY, 18. THE SALE VALUE OF SUCH SHARE ON THAT PARTICULAR DATE , WILL BE THE MARKET VALUE WHICH YOU CAN TAKE AS BASE.
A good article.But it does not indicate how the fair market value as on 31 january 2018 can be determined if , say, the sale takes place five years from now , Do the investors have to keep a permanent record of all investments outstanding as on 31 january 2018? This will be tough on investors who are not tech savy and those who are senior/super senior citizens