Budget 2018 gave sudden shock to the big players in stock market. From April 1, 2018, long term capital gain arising from the sale of shares or equity mutual fund schemes held for over one year and above Rs. 1 Lakh will be taxable @ 10%. Let’s understand in a comparative manner.

Scenario pre Budget 2018

Prior to budget 2018, LTCG was exempted and STCG was taxable at the rate of 15%.

Condition Rate of tax
LTCG Sold after 1 year from the date acquisition Nil
STCG Sold within 1 year from the date of acquisition 15%

Scenario post Budget 2018

After budget 2018, if Long term capital gain is above Rs. 1 Lakh, then it is taxable at the rate of 10%, whereas, there is no change in STCG.

Condition Rate of tax
LTCG Sold after 1 year from the date acquisition 10%
STCG Sold within 1 year from the date of acquisition 15%

Let’s talk about ‘Grandfather’ clause:

There is also a newly introduced clause wherein the capital gains arising from selling listed equities up to January 31, 2018 for resident and non-resident assesses is being grandfathered.

LTCG Grandfather clause Tweet

Let’s under further with the help of FAQs:

Ques.1 On which assets LTCG tax is applicable?

Ans. The Finance Bill, 2018 proposes to provide for a new long-term capital gains tax regime for the following assets–

i. Equity Shares in a company listed on a recognised stock exchange;

ii. Unit of an equity oriented fund; and

iii. Unit of a business trust.

Ques. 2 Is there any condition on its applicability?

Ans. The proposed regime applies to the above assets, if–

i. the assets are held for a minimum period of twelve months from the date of acquisition; and

ii. the Securities Transaction Tax (STT) is paid at the time of transfer. However, in the case of equity shares acquired after 1.10.2004, STT is required to be paid even at the time of acquisition (subject to notified exemptions).

Ques. 3 What will be the tax treatment of accrued gains upto 31st January 2018?

Ans. The gains accrued upto 31st January, 2018 will continue to be exempt.

The long-term capital gains exceeding Rs. 1 Lakh arising from transfer of the assets made on after 1st April, 2018 will be taxed at 10 %.

Ques. 5 What will be the tax treatment of transfer of share or unit between 1st February 2018 to 31st March 2018?

Ans. The new tax regime will be applicable to transfer made on or after 1st April, 2018, 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.

Ques.4 How to calculate LTCG?

Ans. The long-term capital gains will be computed by deducting the cost of acquisition from the full value of consideration on transfer of the long-term capital asset. Let’s understand further with an illustration:

Scenario 1 2 3 4
Sales Consideration 300 300 300 300
Actual Cost of acquisition 250 400 350 200
FMV as on 31st January 2018 200 250 400 300
Cost for working capital gain 250 400 350 300
Capital Gain 50 -100 -50 0

From above illustration, we understood one thing that, for assets acquired prior to 1st February 2018, actual cost of acquisition or fair market value of the asset as at 31st January 2018, whichever is higher. However, the fair market value of the asset cannot exceed the sale consideration.

Conclusion:

Now the questions arise in our heads that is there any wayout to escape from this LTCG tax burden, from above discussion it is clear that it cannot be avoided altogether, but yes, there is an escape window upto 31st March, 2018, because till this time, LTCG tax is exempted. But technically there is no way out if Long term capital gains is above Rs. 1 lakh after 1st April, 2018, but yes, it can be minimized by Setting off from Long term capital Loss. Yes, post budget 2018, long term capital loss can be set off against long term capital gains and can also be carry forward for 8 years. Let’s understand with an example-

Suppose there is a long term capital loss of Rs. 2,30,000 and long term capital gains is 500,000. Now understand:

If there is no set off provision– if there is no provision of set off, then LTCG would be payable on Rs. 4,00,000 @ 10% (5,00,000-1,00,000), and

If we avail the set off provision– And now if we set off this capital gain with capital loss, then LTCG would be payable on Rs. 1,70,000 (5,00,000-2,30,000-1,00,000)

Please note that above provision (Set off & carry forward) provision shall be applicable w.e.f 1st April, 2018.

Following options are also available:

  • Investment in residential property within a time frame (Section 54/54F)
  • Deposit funds under the Capital gain account scheme
  • Investment in Bonds

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