Budget 2018: The how, what, when, where and why of Arun Jaitley's LTCG tax

FM Arun Jaitley has re-introduce long-term capital gains tax on sale of listed equity shares exceeding Rs 100,000 at 10%, without allowing any indexation benefit

FM Arun Jaitley in his 2018 Union Budget speech has proposed to re-introduce long-term capital gains tax on the transfer of listed equity shares, at 10 per cent, without allowing any indexation benefit. However, all gains up to 31 January, 2018 will be grandfathered.

FAQs on LTCG tax

Long-term capital gains (LTCG) tax on equity investments has been reintroduced after 14 years. Until now, gains made on shares held for more than a year were exempt from taxes. The Union Budget proposes to levy LTCG tax of 10 per cent starting April 1. Most of your FAQs are answered below:

Will LTCG apply to all investors?

Only investors who earn profits in excess of Rs 100,000 on their equity investment in a financial year will have to pay 10 per cent LTCG. 

When will the new tax come into effect?

LTCG tax of 10 per cent will come into effect from April 1, 2018.

Will shares acquired prior to April 1 also be taxed?

Yes. All existing equity investments will come under the LTCG ambit. However, the cost of acquisition for all existing investments will be the original purchase price or the highest quoted price on January 31, whichever is higher. In stock market terms. This is called grandfathering.

Illustration:

Suppose X buys 1,000 shares of Reliance Industries at Rs 500 on January 1, 2016. The shares quoted a highest price of Rs 1,000 on January 31, 2018. X sells the shares on July 1, 2018 for Rs 2,000 apiece. The actual profit made by X is Rs 1,500,000 {2,000-500=1,500*1,000}. However, the 10 per cent LTCG tax will be levied on Rs 1 million {2,000 (selling price)-1,000 (Jan 31 price)=1,000*1,000 (no, of shares held}.

Will sale of shares between February 1 and March 31, 2018 be subject to LTCG?

No. The new rules will apply from April 1, 2018.

Has the STCG been changed?

No. Short-term capital gains, or STCG (that’s gains made on sale of shares held for less than 12 months) will continue to attract a flat 15 per cent.