Here’s how the new long-term capital gains (LTCG) tax regime will work for individuals selling equity or equity mutual fund (MF) units or even units of a business trust.
The Budget 2018 proposes to change how LTCG on equity shares and units of equity-oriented MFs are taxed in your (an individual’s hands). But there are two escape windows and one mitigating factor.
Escape window 1: If you sell your equity or equity MF units (held for more than one year) before 31.3.2018, you can still claim tax exemption on long term capital gains from these. The new tax regime for LTCG is effective for transactions done from April 1, 2018.
Escape window 2: LTCG on these instruments realised after 31.3.2018 by an individual will remain tax exempt up to Rs 1 lakh per annum i.e. the new LTCG tax of 10% would be levied only on LTCG of an individual exceeding Rs 1 lakh in one fiscal. For example, if your LTCG is Rs 1,30,000 in FY2018-19 from these two instruments then only Rs 30,000 will face the new LTCG tax.
If you sell after 31.3.2018 the LTCG will be taxed as follows: (Refer to tables at the bottom)
The cost of acquisition of the share or unit bought before Feb 1, 2018, will be the higher of :
a) the actual cost of acquisition of the asset
b) The lower of : (i) The fair market value of this asset(highest price of share on stock exchange on 31.1.2018 or when share was last traded. NAV of unit in case of a mutual fund unit) and (ii) The sale value received/accrued when the share/unit is sold.
For example: If you bought a share for Rs 100 and have held it for more than 12 months (to qualify for LTCG) ; and say the fair market value of the asset on 31.01.2018 is Rs 120 and you sell it for Rs 130 on 1.5.2018 then the cost of acquisition of this share would be Rs 120. You would (for tax purposes) have realised LTCG of Rs 130 minus Rs 120 i.e. Rs 10.
LTCG tax calculated as per the new regime proposed in Budget 2018 :