Union Budget 2018 re-introduced long-term capital gains tax on sale of equity shares and equity MFs. While the re-introduction created anxiety, it is a solace that it comes with Rs.1 lakh threshold for exemption (capital gain amount) and provisions to grandfather the gains until January 31, 2018, says Rakesh Santhalia, CFO, Karvy Computershare. Here are FAQs to help distributors understand these provisions better.
What is the applicable date for these provisions?
Like most Budgetary changes, these provisions will also be applicable from April 1, 2018, after both houses of Parliament clear it and the President gives his assent. This means, all capital gains realised from April 1, 2018 will be attracting these provisions.
Budget talks about Rs.1 lakh exemption. How is this to be calculated?
Long-term capital gains realised from all transactions under sale of equity shares and equity MF schemes during the financial year will be aggregated. For example, if the total of the long-term capital gain is at Rs.2 lakhs in the financial year, then the investor has to pay LTCG tax of 10% on Rs.1 lakh only.
What is grandfathering?
Grandfathering means the exemption granted to investors on the gains made by them before the new provisions come into force. This is more of a comfort clause while migrating from an easier to a strict tax regime. The government intends to grandfather or exempt gains made until January 31, 2018.
How does grandfathering work?
If your investor sells stocks or equity mutual fund units held for over a year, on or after April 1, 2018, LTCG tax will be calculated on the basis of higher of 1) purchase price or 2) lower of (i) highest traded price or declared NAV in case of MFs, on January 31, 2018 or (ii) sale price. See the examples given below for better understanding. It should be noted that a “loss” scenario is indifferent to “grandfathering” provision.
What if the equity share was not traded on January 31, 2018 or the MF scheme did not declare NAV?
In that case, the traded price or declared NAV as on the immediately preceding date to January 31, 2018 is to be considered.
Can we know about different scenarios and applicable LTCG tax impact?
|
Scenario |
Stock / Equity MF units bought on 1st January 2017 (A) |
Highest traded price or declared NAV on 31st January 2018 (B) |
Sale Price on 2nd April 2018 (C) |
Long-term capital gain |
|
Example 1 |
Rs 100 |
Rs 200 |
Rs 300 |
Rs 100 (‘C’ – ‘B’, as ‘B’ is higher than ‘A’) |
|
Example 2 |
Rs 100 |
Rs 50 |
Rs 300 |
Rs 200 (‘C’ – ‘A’, as ‘A’ is higher than ‘B’) |
|
Example 3 |
Rs 100 |
Rs 150 |
Rs 125 |
NIL (‘C’ – ‘C’, as ‘C’ is lower than ‘B’ and higher than ‘A’) |
|
Example 4 |
Rs 100 |
Rs 75 |
Rs 90 |
LTCG loss of Rs 10. (‘C’ – ‘A’) |
You can post any additional queries on this topic in the comment section below. We would be happy to respond to you to the extent possible.
