Long term capital gains tax (LTCG) @ 10% on capital gains made on equity over Rs. 1 lakh has been introduced as against the market's expectations of a likely change in the length of the holding period for long term capital gains to probably 2 or 3 years from 1 year time period.
The thing to be noted here is that the benefit of indexation shall no more be allowed. All gains until January 31, 2018 will be grandfathered.
To understand the provision better let's say, if the shares have been purchased six months back at Rs. 100 and quotes at the highest price of Rs. 120 on January 31, 2018 then gains on it shall not arise LTCG liability if sold after a year.
Nonetheless, any gains over Rs. 20 after January 31, 2018 shall be taxed @ 10% if the shares are sold after 1 year i.e. July 31, 2018.
No tinkering has been done with the short term capital gains for the listed securities remains unchanged @ 15%.
Securities transaction tax on equities has also not been touched upon and remains applicable even when the LTCG tax has been reintroduced.
Earlier LTCG on capital gains made on selling equity shares was done away in the year 2004.
Markets did not reacted much to the re-introduction of LTCG and has recovered from the day's low to trade higher. Nifty and Sensex are trading higher by 63 and 190 points respectively.