As per the present provision of Section 10(38) of Income Tax Act, the Long Term Capital Gains arising on transfer of Equity Shares or Units of Equity Oriented Funds or units of business trusts are exempt. However as per the Finance Bill 2018, this exemption is proposed to be withdrawn from 01.04.2018 and in place of this a new section 112A is to be inserted to tax the Long Term Capital arising on the sale of Shares, Unit of Equity Oriented Funds or Unit of Business Trust.
The salient features of the new provision (Section 1 12A) are as under:
1. The LTCG on sale of Shares, Unit of Equity Oriented Funds or Unit of Business Trust shall be taxed at 10% on the capital gains in excess of Rs. 1 Lakh in a year.
2. The benefit of indexation shall not be allowed for the computation of such LTCG.
3. The concessional rate of 10% will be applicable, if STT has been paid on both acquisition and transfer of such capital asset, if it is an equity shares, and paid at the time of transfer in case of unit of equity oriented fund or a unit of a business trust
4. Deduction under chapter VIA (80C to 80U) & rebate u/s 87A shall not be available from GTI to the extent of such long term capital gain.
5. Cost of acquisition for asset acquired before 1st February 2018 would be HIGHER of the following:
a) The actual cost of acquisition of such asset and
b) Fair market value (FMV) of such assets as on 31.01.18 OR actual sales consideration accruing on its transfer, whichever is lower.
6. The fair Market Value means: “where the capital asset is listed on any recognized stock exchange, it is the highest price for such asset quoted on recognized stock exchange on 31st January, 2018. However, if there is no trading in such shares on such exchange on 31.01.2018 , the highest price of such assets on such exchange on a date immediately preceding 31.1.2018 . In case of units which are not listed on recognized exchange, the NAV of such units as on 3 1st Jan 2018 shall be deemed to be its FMV.
7. A GRANDFATHERING CLAUSE has been introduced under such computation of LTCG, meaning thereby that the all LTCG up to 3 1st January, 2018 would be exempt from Income Tax.
8. Since the new provisions are proposed to be applicable w.e.f. 1st April, 2018, hence any LTCG on sale up to 31st March, 2018 shall be exempt u/s 10(38).
9. The manner of calculation of LTCG in such a way is transitional in nature, for purchases made on or before 3 1.01.2018 only. For capital assets purchased after 3 1.01.2018, LTCG will be computed as Sales Price – Purchase Price subject to exemption limit of Rs. 100000 p.a.
10. Let us understand the new provisions with few illustration of trading in listed equity shares as per the table given as under:
Illustration on computation of LTCG
|Type of Gain||STCG||LTCG||LTCG||LTCL|
|Cost of acquisition||A||3,00,000||3,00,000||3,00,000||6,00,000|
|FMV as on 31.01.18||B||N.A||N.A. (Note 2)||2,50,000||5,00,000|
|Deemed Cost of Acquisition as on 3 1.01.18 as per formula given in Para 5 above||D||N.A||N.A. (Note 2)||3,00,000||6,00,000|
|Capital Gain (C-D)||E||2,00,000 (Note 4)||2,00,000 (Note 2)||2,00,000||(1,50,000)
|Whether10 (38) applicable||No, as it is
|Taxable u/s 11 2A||N.A.||No||Yes||Yes|
|Tax Liability (Note 1)||30,000||Nil||10,000||Nil|
Note 1: Tax Liability: STCG @ 15% and LTCG @ 10% above Rs. 1,00,000 /-. Note 2: Since the new provision is applicable from 01.04.2018 and the sale is before that date, LTCG for sale up to 31.03 .2018 is exempted from tax u/s 10(38). Note 3 : Long Term Loss can be carried forward up to 8 AY if ITR is filed in time. Note 4 : Short term Capital Gain (C- A) i.e. Sale –Purchase (Rs 5 lacs – Rs 3 lacs) Note 5: Tax liability computed above would be increased by the Surcharge and Cess as applicable.
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