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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.
Many months before the presentation of the Union Budget 2018 on 1 February 2018, newspaper reports had predicted the possibility of re-introduction of tax on long-term capital gains arising from transfer of listed equity shares / units of equity oriented mutual funds / units of business trust (specified assets).
Capital assets and inventory are treated differently for the purpose of taxation and are governed by distinct provisions. As a result, classification of assets has often been a subject matter of challenge by the tax authorities. So also, a change in this classification by the taxpayer.
As per the proposed amendment and insertion of new section 112A of the Income-tax Act, 1961, long-term capital gains made on sale of equity shares or equity-oriented unit to be taxable at the rate of 10% with effect from 1 April 2018.
While Finance Bill, 2018 introduced a new tax regime for taxation of on long term capital gain on specified class of asset, there has been a lot of confusion regarding applicability, tax ability and calculation of the same. Here in this article, I have tried to clarify the same along with the illustration.
Taxation of Long Term Capital Gain (LTCG) on Listed Equity Shares (considering the amendments made through Budget 2017 & proposed in Budget 2018)
Let’s understand the tax ability of listed equity shares with a flow chart (assuming STT has been paid on purchase & sale of shares in a recognized stock exchange)
Since the time the FM has announced 10% Long Term Capital Gains (LTCG) without indexation benefit on Equity investments, there is continuous debate and discussion on the same. You must have read multiple articles on how the LTCG will be determined, the rules, grandfathering provision and so on.
The Budget proposes that LTCG tax will have to be paid on profit booked after March 31. Sale of shares made till March, the existing law will apply and LTCG will not be applicable. So if you sell before March 31 a stock that has been held for more than a year, you do not have to pay tax. However, if you sell it on or after April 1, LTCG tax will apply on the gains.
Since the introduction of the Finance Bill, 2018 on 1st February, 2018, several queries have been raised in different fora on various issues relating to the proposed new tax regime for taxation of long-term capital gains. The responses to these queries are provided below.
