• HDFC
• 26 Jul 2018
• Knowledge Centre

HDFC, Tester

In early 2018, Long Term Capital Gains (LTCG) tax made it to the news again, when the Finance Minister re-introduced it on profits made on investments that are held for over a year. The tax was scrapped earlier in 2005 to encourage market participation, and since then long-term capital gains were exempt from tax.

 

As the name explains, it is the tax an investor pays on the profit that his investments make over a particular period of time. The investments can be in the stock market, market-linked financial products or realty.

 

LTCG Tax on Equity

 

Starting 01st April 2018, a tax of 10% has been imposed on a profit of above Rs. 1 lakh on the sale of shares or equity mutual fund schemes that have been held for over a year. As a breather, the government announced that the gains made from shares or equity mutual fund schemes till January 31st, 2018 will be exempt from LTCG tax.

 

How will the LTCG tax be calculated?

 

If you sell shares or equity mutual fund units to make a profit of above Rs. 1 lakh post 01st April 2018, then the tax will be calculated either on the acquisition price or the closing price, whichever is higher. Let’s chart out a step-by-step method to check how to calculate the LTCG tax:

 

1. If you wish to sell your stocks or equity mutual fund units, first check the holding period. If held for less than a year, your investment will attract a Short-Term Capital Gain (STCG) tax of 15%. On the other hand, if held for over a year, then a LTCG tax of 10% will be levied.
2. To calculate the LTCG tax that you will have to pay, follow these guidelines:
• For every withdrawal you made, find what the value of your holding on January 31st, 2018 was.
• Check if the original cost price was higher than this price because whichever is higher, will be considered as the cost price to calculate the LTCG tax.
• Subtract the value you get from the selling price and note the number down.
• Repeat the process for all investments (eligible for LTCG).
• Add all the numbers first and then subtract the answer from Rs. 1 lakh.
• If you get a positive number, you have made profits and 10% tax will be levied on that number. If the number is negative, you made a loss and are not eligible to pay any tax

 

It is important to note that in case of the LTCG tax on equity mutual funds and shares, you will get the entire amount, without any tax deduction. You (or a hired professional) must calculate the tax and pay it while filing your annual returns.