Long-Term Capital Gains Tax (LTCG) Decoded – How Would it Affect Your Investments?
LTCG is still unclear to most of the investors’ fraternity.
Arun Jaitley (Finance Minister) in his Budget announced a 10 percent Long-Term Capital Gains Tax (LTCG) on stocks and equity-oriented mutual funds if the total amount of gains exceeded Rs 1 lakh.
Following the announcement, the Central Board of Direct Taxes (CBDT) has explained how the tax would work in different scenarios. The board has given four different scenarios to explain the impact of the tax on shares purchased before January 31, 2018.
Scenario 1: An equity share is acquired on 1st of January, 2017 at Rs 100, its fair market value is Rs 200 on 31st of January, 2018 and it is sold on 1st of April, 2018 at Rs 250. As the actual cost of acquisition is less than the fair market value as on 31st of January, 2018, the fair market value of Rs. 200 will be taken as the cost of acquisition and the long-term capital gain will be Rs 50 (Rs. 250 – Rs. 200).
Scenario 2: An equity share is acquired on 1st of January, 2017 at Rs. 100, its fair market value is Rs. 200 on 31st of January, 2018 and it is sold on 1st of April, 2018 at Rs. 150. In this case, the actual cost of acquisition is less than the fair market value as on 31st of January, 2018. However, the sale value is also less than the fair market value as on 31st of January, 2018. Accordingly, the sale value of Rs. 150 will be taken as the cost of acquisition and the long-term capital gain will be NIL (Rs. 150 – Rs. 150).
Scenario 3: An equity share is acquired on 1st of January, 2017 at Rs. 100, its fair market value is Rs. 50 on 31st of January, 2018 and it is sold on 1st of April, 2018 at Rs. 150. In this case, the fair market value as on 31st of January, 2018 is less than the actual cost of acquisition, and therefore, the actual cost of Rs. 100 will be taken as the actual cost of acquisition and the long-term capital gain will be Rs. 50 (Rs. 150 – Rs. 100).
Scenario 4: An equity share is acquired on 1st of January, 2017 at Rs. 100, its fair market value is Rs. 200 on 31st of January, 2018 and it is sold on 1st of April, 2018 at Rs. 50. In this case, the actual cost of acquisition is less than the fair market value as on 31st January 2018. The sale value is less than the fair market value as on 31st of January, 2018 and also the actual cost of acquisition. Therefore, the actual cost of Rs. 100 will be taken as the cost of acquisition in this case. Hence, the long-term capital loss will be Rs. 50 (Rs. 50 – Rs. 100) in this case.
The author is an Independent Research Analyst with over 10 years of experience in equity markets and offers unbiased advice and actionable analytics to clients.
You can reach him at [email protected] for queries/consulting or Portfolio Management.
