Budget 2018 LTCG Tax is now the biggest news among equity investors. However, many interpreting it in different ways. Hence, let us understand the Budget 2018 LTCG Tax on Stocks and Mutual Funds.
Before jumping into understanding this change of Budget 2018 LTCG Tax, let us first understand the basics rightly.
LTCG Tax on Stocks and Mutual Funds before the Budget 2018
Before the Budget 2018, the taxation of Stocks and Mutual Funds was as below.
Holding period for Stocks and Equity Mutual Funds-If held for less than a year then it is considered as STCG and if held for more than a year then it is considered as LTCG.
Holding period of other than stocks and Equity Mutual Funds-If held for less than 3 years then it is considered as STCG and if held for more than 3 years then it is considered as LTCG.
Below table will give you the tax structure of Stocks and Mutual Funds as per Budget 2017.
Budget 2018 LTCG Tax on Stocks and Mutual funds
Do remember that post Budget 2018, there is no change in STCG (Short Term Capital Gain) and also the rules in relation to holding period to identify the LTCG or STCG. The only change that affected is LTCG. Hence, let us concentrate on LTCG.
In Budget speech, Mr. Arun Jaitly mentioned this new taxation as below.
“I propose only a modest change in the present regime. I propose to tax such long-term capital gains exceeding `1 lakh at the rate of 10% without allowing the benefit of any indexation. However, all gains up to 31st January 2018 will be grandfathered. For example, if an equity share is purchased six months before 31st January 2018 at Rs.100/- and the highest price quoted on 31st January 2018 in respect of this share is Rs.120/-, there will be no tax on the gain of Rs.20/- if this share is sold after one year from the date of purchase. However, any gain in excess of Rs.20 earned after 31st January 2018 will be taxed at 10% if this share is sold after 31st July 2018. The gains from equity share held up to one year will remain short-term capital gain and will continue to be taxed at the rate of 15%.“.
Considering this, many assumed the calculation as per their wish. However, Finance Bill 2018 clearly mentioned how to arrive at the cost of acquisition of the capital asset. I share the same as below.
“The cost of acquisition for the purposes of computing capital gains referred to in sub-section (1)
in respect of the long-term capital asset acquired by the assessee before the 1st day of February,
2018, shall be deemed to be the higher of—
(i) the actual cost of acquisition of such asset; and
(ii) the lower of—
(a) the fair market value of such asset; and
(b) the full value of the consideration received or accruing as a result of the transfer of the capital asset.”
Let us calculate the LTCG and STCG based on the Budget 2018 clarification. Here I am giving you both the scenarios of how the LTCG and STCG be taxed from now onward on Stocks and Equity Mutual Funds and also for the existing investors.
Hope now you all got the clarity on this subject. There is a huge cry today that what will happen to my investments. Because many of us invested in the stock market or stock market-related products in view of TAX-FREE and also for the BETTER return.
Those invested for the sake of TAX-FREE will definitely be finding it difficult to digest. However, those who invested for BETTER long-term real return, they no need to worry.
At the end, we can’t force our views on Government and bend it as per our terms right??
Refer our related posts:-
- Latest Income Tax Slab Rates FY 2018-19 (AY 2019-20)
- Budget 2018 – Mutual Fund Taxation FY 2018-19
- Budget 2018 Highlights -10 changes every investor must know