As per the announcement in the budget by the Finance Minister, a tax on Long Term Capital Gain (LTCG) on sale of listed equities, shares or equity oriented Mutual Fund (MF) or a unit of Business Trust, has been introduced for gains above INR 1 lakh at 10% of Capital Gain without benefit of indexation. However, the gains earned till 31 January 2018 shall not be taxed and only the incremental gains above the higher of cost price or highest share price on 31 January 2018 shall be taxed.

Summary:

a) Provision applicable on – Listed shares or equity oriented MF or a unit of Business Trust

b) Long term – If the shares or MF is held for 1 year or more it is long term

c) Basic exemption limit – INR 1 lakh

d) Condition – Securities Transaction Tax (STT) must have been paid on acquisition and sale of the equity shares and for others at the time of transfer

e) Taxable LTCG – Sale Value Less (-) Cost of Acquisition

f) For shares acquired before 1 February 2018 – Cost of acquisition shall be higher than actual cost or fair market value (Fair market value is the highest price of a share on 31 January 2018 on any recognised stock exchange but shall not exceed the sale price or full value of consideration).

g) Applicability of this provision – After 1 April 2018 (Financial Year 2018-19 and onwards)

An example:

100 shares of XYZ Ltd were purchased on 10 February 2017 for INR 50,000. Highest value on NSE & BSE as on 31 January 2018 is INR 1,00,000

The tax liability under different situations are as below:

a) If sold on 31 March 2018 for INR 1,20,000

Tax = NIL (In Financial Year 2017-18 LTCG is fully exempt)

b) If sold on 1 July 2018 for INR 1,50,000

LTCG = (1,50,000-1,00,000) = 50,000

Tax = NIL (Since LTCG up to 1 lakh is exempted)

c) If sold on 1 July 2018 for INR 2,50,000

LTCG = (2,50,000 – 1,00,000) = 1,50,000

Tax = (1,50,000 – 1,00,000) * 10% = 5,000

d) If sold on 1 July 2018 for INR 90,000

LTCG = (90,000 – 90,000) = 0 (As the Fair Market Value cannot exceed Sale Price)

Tax = NIL

 
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