c

Lakshminarayan Sudarsan

1. Actual Cost of Acquistion. ( ACA) = (a)

2. Actual Value of Sale ( AVS) = (b)

3. Fair Market Price as at 31-01-2018 (FMV) = (c)

The present Guideline for calculating the LTCG/LTGS:-

Step 1.  Take Lower of AVS and FMV = (b) and (c)

Step 2.  Take ACA = (a)

Step 3.  Revised Cost of Acquisition ( RCA) = Lower of (b) and (c)and Greater than (a)

Step 4.  LongTerm Capital Gain/Loss ( LTCG/LTGS) = ( AVS ) minus ( RCA )

Assessee Catagory
Date of Purchase
No of Share
Actual Cost (ACA)
(a)
Date of Sale
Actual Sale Value (AVS)
(b)
Fair Market Price (FMV)
(c)
Revised Cost (RCA) Lower of (b) and (c) and greater than (a)
(d)
Long Term Capital Gains/ Loss = (b) – (d)
Long Term Capital Gains/ Loss If (RCA) = (FMV) =(b) – (c)
A
10.04.1983
1
10
15.09.2020
1000
500
500
500
500
B
10.04.1983
1
10
15.09.2020
200
500
200
0
-300
C
10.04.1983
1
10
15.09.2020
2
200
10
-8
-198
D
10.04.1983
1
25
15.09.2020
1
2
25
-24
-24

Govt of India introduced the “Grand Fathering” principle in the Indian Income tax Act for the purpose of safeguarding the “Unrealised Profit” earned by the Assesses upto 31-01-2018. In order to achieve this objective, the Actual Cost of Acquisition of the securities together with the unrealised profit is to be treated as Revised Cost of Acquisition as at 31-01-2018.

A says that in 1983, I have purchased a share at Rs.10 and as on 31-01-2018, the Market Price has gone up to Rs. 500. Therefore my unrealised Profit is Rs. 490. In view of the “Grand Fathering” principle introduced by introduced by Govt of India, my unrealised Profit of Rs. 490 has been safeguarded and the Revised Cost of Acquisitionhas to be arrived at Rs. 500 (RCA). There is no logical significance to bring theActual Value of Sale(AVS) intothe calculation of Revised Cost of Acquisition. If the (AVS) is always more than the Market Price as at 31-03-2018 (FMV) , the formula of choosing either the (AVS) or (FMV)whichever is lower to arrive at the Revised Cost of Acquisition, the Formula would work the same way, but not otherwise when future sale price falls belowthe Market Price as at 31-01-2018 (FMV).
B says that in 1983, I have also purchased a share at Rs.10 and as on 31-01-2018, the Market Price has gone up to Rs. 500. Therefore my unrealised Profit is Rs. 490. In view of the “Grand Fathering” principle introduced by Govt of India, my unrealised Profit of Rs. 490 should besafeguarded and the Revised Cost of Acquisition has to be fixed at Rs. 500. But by adopting the formula of choosing either the Actual Sale Value (AVS) or Market Price as at 31-01-2018 (FMV) whichever is lower to arrive at the Revised Cost of Acquisition, my Revised Cost of Acquisition (RCA) has been arrived at Rs.200 as against Rs. 500 and therefore my LongTerm Capital gain is arrived at Rs. 0. I am deprived of my Unrealised Profit of Rs.490 by adopting the existing Formula.
C says that in 1983, I have also purchased a share at Rs.10 and as on 31-01-2018, the Market Price went up to Rs. 200. Therefore my unrealised Profit is Rs. 190. In view of the “Grand Fathering” principle introduced by Govt of India, my unrealised Profit of Rs. 190 should be safeguarded and the Revised Cost of Acquisition has to be fixed at Rs. 200. But by adopting the formula of choosing either the Actual Sale Value (AVS) or Fair Market Price as at 31-01-2018 (FMV) whichever is lower to arrive at the Revised Cost of Acquisition, my Revised Cost of Acquisition (RCA) has been arrived at Rs.2 as against Rs. 200 and therefore my Long Term Capital loss is arrived at Rs. -8. I am deprived of my Unrealised Profit of Rs.200 by adopting the existing Formula. My LongTerm Capital Loss would have been Rs.-198.
D says that in 1983, I have also purchased a share at Rs.25 and as on 31-01-2018, the Market Price has down to Re. 1. Therefore my unrealised loss is Rs. -24. Even by adopting the formula of choosing either the (ASV) or (FMV)whichever is lower to arrive at the Revised Cost of Acquisition, my Revised Cost of Acquisition has been arrived at Re.1 and my Longterm Capital loss is at Rs.-24. It makes no difference.

Govt of India introduced the “Grand Fathering” principle in the Indian Income tax Act for the purpose of safeguarding the “Unrealised Profit” earned by the Assesses upto 31-01-2018. In order to achieve this objective, the Actual Cost of Acquisition of the securities together with the unrealised profit is to be treated as Revised Cost of Acquisition as at 31-01-2018.

It would be observed that the present Guideline is beneficial to the assesses belonging to Category A ( let us call them as Grandsons). In so far as the assesses belonging to Categories B and C( let us call them as Grand daughters) the present Formula is discriminatory and not fair. They feel that the Grand Fathering principle is not UNIFORMLY and IMPARTIALLY applied.

In order to mitigate the grievances of Grand daughters and to apply the Formula without any discrimination, it is suggested that :-

1 The Market Price as at 31-01-2018 (FMV) is to taken UNIFORMLY and IMPARTIALLY as the Revised Cost of Acquisition for all the assesses.

2 The difference between the Actual Value of Sale (AVS) and the Revised Cost of Acquisition (RCA) is to treated as Long Term Capital Gain or Loss as the case may be.

Note relating to Long Term Capital Gain-Loss (LTCG-LTGS)

To sum up, is the above-mentioned suggestion is a fit and justifiable case to make a representation to CBDT for their consideration, and if thought fit, to issue a revised Guideline?

It may not be out of place to say that if the Late Honourable Finance Minister, Shri. Arun Jaitley were to believe, he would have willingly considered and accepted this suggestion and arranged to issue a revised Guideline accordingly. However,May we pray for the heavenly recommendation be communicated to CBDT?

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