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How LTCG Tax Is Calculated On Equities?

IndianMoney.com Research Team | Updated On Monday, June 11,2018, 10:36 AM

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How LTCG Tax Is Calculated On Equities?

 

 

The Finance Minister Arun Jaitley presented the Union Budget 2018-19 on February 1st 2018. One of the main points in this Budget was the introduction of an LTCG (Long Term Capital Gains) tax of 10%, on equity and equity-oriented mutual fund schemes.

An interesting point was the Grandfathering clause which has been a subject of much debate. Grandfathering is an exemption provided to you and other investors, on all the gains made on equity-oriented funds, before the new provision was announced. According to this rule, all gains made on or before January 31st 2018, would be grandfathered.

The proposed 10% LTCG tax will apply to your profits from the sale of equity-oriented funds, on or after April 1st 2018, on gains which exceed Rs 1 Lakh. Want to know more on investment planning and mutual funds? We at IndianMoney.com will make it easy for you. Just give us a missed call on 022 6181 6111 to explore our unique Free Advisory Service. IndianMoney.com is not a seller of any financial products. We only provide FREE financial advice / education to ensure that you are not mis-guided while buying any kind of financial products.

 

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How LTCG Tax Is Calculated On Equities?

You can heave a sigh of relief as the proposed 10% LTCG tax, will apply on your profits from sale of equity-oriented funds, only on or after April 1st 2018 on gains which exceed Rs 1 Lakh. The LTCG Tax of 10% will be charged on gains/profits on equity shares and equity oriented mutual funds, only if you sell on or after April 1st 2018.

What happens if you sell equity-oriented funds, on or after April 1st 2018 after staying invested for a year or more? If you sell equity-oriented funds after April 1st 2018, your LTCG will be taxed at 10% on gains which exceed Rs 1 Lakh. The acquisition cost for computing capital gains will be the higher of the actual purchase price or the maximum traded price as on January 31st 2018.

 

1. Understand 4 scenarios for calculating LTCG after April 1st 2018:

Case 1:

The market price of the share as on Jan 31st is more than the cost of acquisition, but less than the sale price: 

You have bought shares for Rs 150. The fair market price is Rs 250. (Fair market price = highest traded price as on January 31st 2018). The shares were sold for Rs 400.

The cost of acquisition of the share (purchase price) was Rs 150. The fair market value was Rs 250. As the actual cost of acquisition is less than the fair market value as on January 31, the fair market value will be taken as the cost of acquisition.

Long Term Capital Gain = Selling Price - Fair market value = Rs 400 - Rs 250 = Rs 150.

 

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Case 2 :

The market price of the share as on Jan 31 is more than cost of acquisition and sale price:

You have bought shares for Rs 300. The fair market price is Rs 400. (Fair market price = highest traded price as on January 31st 2018). The shares were sold for Rs 350. You will see the cost of acquisition is Rs 300 (your purchase price), which is less than the fair market value of Rs 400.

You notice that both the cost of acquisition and the selling price is less than the fair market value. The cost of acquisition will be the selling price of Rs 350.

Long Term Capital Gain = Rs 350 - Rs 350 = Rs 0.

 

SEE ALSO: Budget 2018: How LTCG Tax Works On Equity Funds?

 

Case 3 :

The market price of the share as on Jan 31st is lower than the cost of acquisition.

You have bought shares for Rs 400. The shares are sold for Rs 500. The fair market value is Rs 300. (Fair market price = highest traded price as on January 31st 2018). The fair market value is less than the cost of acquisition. The actual purchase price of Rs 400 will be taken as the actual cost of acquisition.

Long Term Capital Gain = Rs 500 - Rs 400 = Rs 100.

 

Case 4 :

The selling price of the share is less than both fair market value and the cost of acquisition.

You have bought shares for Rs 300. The shares are sold for Rs 200. The fair market value is Rs 350. (Fair market price = highest traded price as on January 31st 2018). The selling price is less than fair market value and the actual cost of acquisition. The actual purchase cost of Rs 300 will be taken as the cost of acquisition.

Long Term Capital Gain = Rs 200 - Rs 300 = Capital loss of Rs 100.

You have understood how to calculate LTCG tax on equity-oriented mutual shares and equity shares, through these 4 scenarios. Be Wise, Get Rich.

 

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