Taxation on Long Term Capital Gains

In Finance Bill 2018, Finance Minister Mr. Arun Jaitely introduced long term capital gains tax on sale of listed equity shares or Equity oriented mutual funds. Here's simplified implications of this provision.

Highlights of the provision:

• 10% Tax to be levied on Long Term Capital Gains on sale of listed equity shares or Equity Oriented Mutual Funds of more than ₹ 1,00,000/- w.e.f  F.Y. 18-19 (A.Y. 19-20): This means no tax would be levied if you sold your long term investments on or before 31.03.2018. 
• Gains till 31.01.2018 are grandfathered: This means any gains till 31.01.2018 will not be consider for calculation of Long Term Capital Gains. 
• How to calculate Long Term Capital Gains: Sale Consideration – Deemed Cost 
• Deemed Cost: Higher of [Actual Purchase Cost or Day’s High Price /Closing NAV (In case of Mutual Funds) as on 31.01.2018] - Applicable only for securities purchased before 01.02.2018. 
• There is no change in calculations of Holding Period.

We will understand whole concept with below Examples; Indicative Quantity for Calculation is 1200 Shares.

Particulars	CaseII	CaseIII	CaseIIII
Purchase Date	01.05.2010	01.05.2010	01.05.2010
Purchase Price	₹ 100/-	₹ 100/-	₹ 100/-
Sale Date	28.01.2018	13.02.2018	24.06.2018
Sale Price	₹ 500/-	₹ 500/-	₹ 500/-
Day’s High Price on 31.01.18	Not Applicable	Not Applicable	₹ 400/-
Sale Consideration	₹ 6,00,000/-	₹ 6,00,000/-	₹ 6,00,000/-
Actual/Deemed Cost	₹ 1,20,000/-	₹ 1,20,000/-	₹ 4,80,000/-
Long Term Capital Gains	₹ 4,80,000/-	₹ 4,80,000/-	₹ 1,20,000/-
Deemed Cost Provision	Not Applicable	Not Applicable	Deemed Cost: Higher of Actual Cost (100) or Day’s High Price on 31.01.2018 (400), i.e. ₹ 400/-.
Taxability of Case	Since it is sold before 31.03.18 it is fully exempt.	Since it is sold before 31.03.18 it is fully exempt.	Since it is sold after 31.03.18 above provisions are applicable and according to that 10% tax to be levied on Long term Capital Gains of Above Rs. 1,00,000/- i.e. ₹ 2,000 (10% of 20,000/-)

Don’t think much about taxation, Just Grab the current opportunity available in market which was not available in previous year. In Next blog we will understand Power of Compounding. 

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“Compounding is the 8^th wonder of the world, those who understands it earns it those who doesn’t pays it."