Frequently Asked Questions

Since it is a Direct Tax proposal it will normally be applicable for the Assessment Year FY19-20 ( Financial Year FY18-19 ). In other words, the LT Capital gains, of over Rs 1 Lakh, made for the year FY18-19 will be liable to tax at 10%.

Starting 1st April 2018, all share market investors need to pay taxes on the profit they earn; both short-term investors and long term investors. If one holds shares for more than one year, he will be taxed at 10%, if the gains exceed Rs 1 lakh. Short-term investors will continue to pay 15% short-term capital gains tax if an investor sells share within a year from the date of purchase.

Investors in equity-oriented mutual funds have to pay long-term capital gains tax. Any Long Term Capital Gains (LTCG) over Rs 100,000 per year on Equity Mutual funds will now be taxed at 10 percent. Dividends will be taxed at 10%.

The FM has proposed grand fathering of LT Capital gains upto 31st Jan 2018. Any incremental LT Capital gains after that will be counted as LT Capital gains for the new tax.

As for LT Capital gains made in Financial Year 17-18 (i.e sale upto 31st Mar 2018), it appears there is no tax. However, any sale made after 1st April 2018 will be liable to the new LTCG tax. One needs to segregate this LT capital gain into two parts.

a) Part one – is LT Capital gains made upto 31st Jan 2018. This will be highest price of the stock on 31st Jan 2018 minus the cost of acquiring stock;

b) Part two – is LT Capital gains made after 31st Jan 2018. This will be sale price minus highest price of the stock on 31st Jan 2018.

While Part one will be exempt. It is the Part two that will be assessed as LT Capital gains (it can also be a Capital loss) for Tax. Tax on this will be computed at the rate of 10% (+ cess of 3%) only if exceeds Rs 1 Lakh.

One can continue to buy equity shares without any hesitation. Assuming equity investments yield a return of 18% in a year, an investment of Rs 10 Lacs each year will rise to Rs 11.8 Lacs in a year. After first 1 lakh exemption , you only have to pay Rs. 8000 as the long term capital gains tax.