The Finance Bill 2018 reintroduced tax on LTCG made from listed shares and equity-oriented mutual funds. With Effective 1 April 2018, LTCG arising from the sale of these shares and equity oriented funds that are held for more than 12 months are taxable at the rate of 10% if such LTCG exceeds Rs.1 lakh in the given Financial Year.
The LTCG can be taxable under two things—the exemption for LTCG up to Rs.1 lakh, and the grandfathering provision.If you had invested in equity mutual funds or shares before 31 January 2018, any gains till that date will be considered as grandfathered and thus will be exempt from tax.
Method of determining Cost of Acquisition:
A method of determining the Cost of Acquisition (COA) of such investments has been specifically laid down according to which the COA of such investments shall be deemed to be the higher of-
- The actual COA of such investments; and
- The lower of-
- Fair Market Value (‘FMV’) of such investments; and
- the Full Value of Consideration received or accruing as a result of the transfer of the capital asset i.e. the Sale Price
Tax implications under Grandfathering rule:
| Sl No | Scenario | Tax Implications |
| 1 | Purchase and sale before 31/1/2018 | Exempt under Section 10(38) |
| 2 | Purchase before 31/1/2018
Sale after 31/1/2018 but before 1/4/2018 |
Exempt under Section 10(38) |
| 3 | Purchase before 31/1/2018
Sale on or after 1/4/2018 |
LTCG taxable
Gains accrued before 31/1/2018 exempt |
| 4 | Purchase after 31/1/2018
Sale on or after 1/4/2018 |
LTCG taxable |
Illustration 1
Mr A bought equity shares on 10/March/2016 for Rs. 12,000. FMV of the shares was Rs. 15,000 as on 31/Jan/18. He sold the shares on 10/May/2018 for Rs. 18,000. What will be the long-term capital gain/ loss?
Cost of Acquisition (COA)
Higher of –
- Original COA i.e. Rs. 12,000, and
- Lower of –
- FMV on 31.1.18 i.e. Rs. 15,000, and
- Sale Price i.e. Rs. 18,000
Hence, COA = Higher of (Rs. 12,000 or Rs. 15,000) = Rs. 15,000
Capital Gain/ (Loss)
- Sale Price – Cost of Acquisition
- Rs. 18,000 – Rs. 15,000
- Rs. 3,000
Illustration 2
Mr A bought equity shares on 10/March/2016 for Rs. 12,000. FMV of the shares was Rs. 15,000 as on 31/Jan/18. He sold the shares on 10/May/2017 for Rs. 18,000. What will be the long-term capital gain/ loss?
In the given scenario both sale and purchase made on or before 31st Jan 2018.
So, LTCG shall be exempt u/s 10(38).
Illustration 3
Mr. A purchased equity shares on 20/Oct/2016 for Rs. 15,000. FMV of the shares was Rs. 10,000 as on 31/Jan/18. He sold the shares on 26/Feb/2018 for Rs. 28,000. What will be the long-term capital gain/ loss?
In the given scenario purchase was made before 31st Jan 2018 and sale made after 31st Jan 2018 but before 1st April 2018.
So ,LTCG shall be exempt u/s 10(38).
Illustration 4
Mr. X bought equity shares on 21-Dec-2016 for Rs. 17,000. FMV of the shares was Rs. 9,500 as on 31-Jan-18. He sold the shares on 21-May-2018 for Rs. 7,000. What will be the long-term capital gain/ loss?
Cost of Acquisition (COA)
Higher of –
- Original COA i.e. Rs. 17,000, and
- Lower of –
- FMV on 31.1.18 i.e. Rs. 9,500, and
- Sale Price i.e. Rs. 7,000
Hence, COA = Higher of (Rs. 17,000 or Rs. 7,000) = Rs. 17,000
Capital Gain/ (Loss)
- Sale Price – Cost of Acquisition
- Rs. 7,000 – Rs. 17,000
- Rs. (10,000)
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Sir article is informative and presented in a way to understanding by lay man like me. But What if the public Limited unlisted shares purchased before 2018, with all procedures, but listed after Jan 31, 2018. How we arrive at GFV as not data available on GFV date. Please help
I bought 150 shares of an unlisted pvt. Ltd. Company at Rs. 100 per share in 1993. I sold these shares at Rs. 6000 per share on August 2021. What will be LTCG? Grandfathering on 31/01/2018 will be considered or 2001 value with indexation will be considered? Kindly help
Sir, i bought 150 shares (Rs. 100 per share) of an unlisted private limited company in 1993. I sold those shares in august 2021 at rs 6000 per share to the promoters. The company is still unlisted. how to calculate LTCG? Grandfathering will be applicable at 31/01/2018 value or indexation at 2001 value? Kindly help.
I PURCHASED 50 SHARES OF GAIL BEFORE 31.01.2018 @ 50/-AND SOLD IN AUGUST 2022 @ 190/-. FMR ON 31.01.2018 WAS 483/-. HOW TO CALCULATE LTCG AND COST OF ACQUISITION.
Sir what will be tax implications on share holders of an old private ltd co if it is dissolved today in the wake of Grandfathering concept of 2018. Thanks
Sir suppose the shares given in 2006 were a gift then what is the value that will apply for coming up with the value as at that date? Is it 0 (zero) or the market value at that date? Most grateful for a reply
Wow.tks to author explaining in so easy way for even a layman
What is FMV ( Fair Market Value )? Can it be considered as closing price in NSE on 31/01/2018?
What will be LTCG/loss if purchase is before 31/01/2018 and purchase price is not known.Sold in Dec 2020 with less than the price on 31/01/2018.For example purchase price of Sun Pharma purchased more than 10 years ago is not known.Sold in Dec 2020 @ price of Rs 510/.Closing price on 31/01/2018 is 579.90
I think in yr case if dt of purchase is not known in that case coa will be price on gf date .so no profit no loss.y cannot claim ltcapital loss
while calculating LTCG can one use Grandfathering for some scripts and Indexation method for some ?
Excellent summarised explantion with illustration. Thanks.
illustration 4
if the FMV was 20000 on 31 jan 2018 instead of 9500 then LTCL would be calculated as 20000 less 7000 = 13000 ??????
COA is higher of the two ie 17000 vs 20000
am i correct ?
Very informative article. I want to contact you. My mobile number is 9873391380.