The budget presentation on 1st of February revealed that Long Term Capital Gains (LTCG) will be taxed at 10% from 1st of April 2018 and we will be stripped off the tax-free benefits.
There is, however, some relaxation on shares bought before the beginning of the next financial year 2018-19.
Below is a detailed explanation to give you some insight on how exactly your LTCG from equity and equity Mutual Funds (MF) will be treated when you sell it in the FY 2018-19.
Some important notes
- Profit from for equity or equity MF is considered as a long-term capital gain when have held them as possessions for over one year.
- The 10% rate is only applicable from 1st of April 2018. If you wish to sell your shares or mutual funds before 31st March that you have had for over one year, it is still tax-free.
- Beginning April 1, 2018, only profits over Rs 1 lakh will be taxed. So if you have were to make Rs 1,25,000 profit, 10% on Rs 25,000 = Rs 2,500, will be your total tax on Rs 1,25,000.
Cost of acquisition after 31st of March 2018
Cost of acquisition for equity or MF unit is the price at which you bought the equity.
For a share or unit you bought before 1st February 2018, but wish to sell after March 31st, 2018, your cost of acquisition will be one of the higher values of:
- the actual price you paid as cost of acquisition
- the lower value between fair market value and the price at which you sold the shares
Fair market value is the highest price of the stock in the stock exchange as on 31st March 2018 or the last traded price of the share. It is Net Asset Value (NAV) in case of mutual funds.
Suppose you bought a share in somewhere in 2016 for Rs 100, it is now over a year, making it a long term asset
You have decided to sell this share after 31st of March, say 1st June 2018.
Let us assume that the fair value as on 31st of March as per above explanation is Rs 150.
The different scenarios
You sell the share on 1st of June for Rs 200. So your LTCG for tax purposes would be 200-150 = Rs 50.
If you sell the share for Rs 140, your cost of acquisition will be Rs 140 and your profit for tax purposes would be 0.
If you sell the share for Rs 80, your cost of acquisition will remain Rs 100.
Please note this indexation is not applicable on equity or equity based mutual funds bought after 31st March 2018.