It is the tax paid on profit generated by an asset such as real estate, shares or share-oriented products held for a particular time-frame. The definition of Long-term Capital Gains, or LTCG, is different for various products.LTCG proposed in Budget 2018
Finance Minister Arun Jaitley, in his Union Budget speech, re-introduced LTCG tax on stocks. Investors will have to pay 10 per cent tax on profit exceeding Rs 1 lakh made from the sale of shares or equity mutual fund schemes held for over one year. Till now, LTCG was exempt from tax. The definition of a long-term investor in stocks for tax purposes is one year, at present. LTCG tax on stocks was scrapped in 2004-05 by then finance minister P. Chidambaram.The budget talks about 'grandfathering' in LTCG. What is that?
The 'grandfathering' clause is the exemption granted to existing investors or gains made by them before the new tax law comes into force. Whenever the government introduces a stricter tax law, it has to ensure that investors who have committed money keeping in mind the easier tax regime are protected. In the matter of LTCG tax on shares, the government said gains from shares or equity mutual funds made till January 31, will be grandfathered - or exempted. There will be no LTCG tax on notional profit in shares till then.So, who will come under the new LTCG tax net?
The Budget proposes that LTCG tax will have to be paid on profit booked after March 31. "This means that for sale of shares made till March, the existing law will apply and this tax will not be applicable," as per expert of financial matters. In short, if you sell before March 31 a stock that has been held for more than a year, you do not pay tax. So, for tax purposes, there should not be any motivation for investors to sell in February and March. However, if you sell it on or after April 1, LTCG tax will apply on the gains made over and above grandfathering of the stocks held as on 31.01.2018.
For The holding as on 31.01.2018; "The fair market value" ( as on January 31, 2018 ( will be taken as your cost of acquisition for taxation purpose. So, whatever gain an investor has made till this date will be exempted from LTCG"Fair market value" means
Also, this tax is applicable only if LTCG is above Rs 1 lakh in a financial year. So, if an investor made long-term gains of Rs 150,000 in a year, LTCG tax is applicable only for Rs 50,000 (Rs 150,000-100,000).How will LTCG tax be calculated since gains till January 31 have been grandfathered?
If an investor sells stock or equity mutual fund held for over a year after April 1, LTCG tax will be calculated on the basis of the acquisition price or closing price on January 31, whichever is higher. Take the example of a stock purchased on January 15, 2017, for Rs 100, which closed at Rs 150 on January 31, 2018. If sold after March 31, LTCG tax will be calculated based on the closing price of January 31, which is higher.