Decoding long term capital gain tax [LTCG]

The finance minister has re-introduced long-term capital gain tax on the sale of equity shares and mutual funds in the union budget 2018. Let’s understand how this LTCG tax on shares and mutual fund units will be calculated as per proposed rates.

The budget proposed a new method of calculating the long-term capital gain tax payable on shares and units of the mutual funds. The new tax will be applicable from 1st April 2018. So you have a window to escape from paying this tax. For example, if you have held shares or mutual fund units for more than one year and you are selling it before 31.03.2018 you can claim exemption on the long-term capital gain tax.

Another point is that the tax is only applicable to the profit amount exceeding ₹ 1 lakh. It means the tax is remain exempted up to ₹ 1 lakh for an individual in one fiscal. For example, if you LTCG is ₹ 120000 for 2018-19 fiscal, you have to pay 10% LTCG only on the ₹ 20000 as per new proposed tax.

If you sell after 31.03.2018 please refer the table below to derive your payable LTCG amount.

Long term capital gain tax LTCG

Also, please consider below point while calculating your LTCG amount.

  • Indexation of the cost of acquisition is not allowed.
  • The LTCG is applicable to the all listed equity shares and equity oriented mutual funds at 10% where STT is paid on the sale of this units. That means the LTCG is not applicable to the unlisted securities.
  • Cost of acquisition to be taken as the market value as on 31.03.2018, so the impact will not be so high as it seems to be at first glance.

The calculation method is complex but we Indians love complexity. I hope the above information would help you to understand the new tax calculation and based on that you can take the decision of selling your stake if you want to.

My personal view on LTCG is not to worry if you are a long-term investor. I see it as:: there is a coffee jar on the table with 20% extra coffee at the same price. That set me thinking why I am buying this coffee is it because I love coffee? Or is it because it’s available 20% extra without any cost? Would I buy the coffee without this 20% extra offer? Yes, I would because I love coffee I would rather buy it at 20% premium price. Same with the stock market, the free scheme is over and now you would have to pay a premium of 10% to earn higher returns on your capital employed. Just because I have to pay income tax, it doesn’t stop me from generating income.

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