Up to FY 2018-19, Long Term Capital Gain (LTCG) on the sale of shares and securities on which Securities Transaction Tax (STT) is paid was exempt under Sec 10(38) of the Income Tax Act. However, under Budget 2018, the exemption under Sec 10(38) was removed. Further, a new Section 112A was introduced to levy 10% income tax on Long Term Capital Gains on the sale of equity shares, equity mutual funds and units of business trust in excess of Rs. 1 lac for a financial year. Sec 112A was applicable from FY 2018-19 (AY 2019-20) onwards.
What is Long Term Capital Gain?
The profit or loss on the sale of a capital asset held for more than the specified holding period is a Long Term Capital Gain (LTCG) or Long Term Capital Loss (LTCL).
Based on the period of holding, here is a summary of Capital Gain on the sale of Capital Assets. Eg: If the listed equity share of a domestic company is sold after 12 months of purchase, the profit or loss is Long Term Capital Gain or Long Term Capital Loss.
|Capital Asset||Period of Holding|
|Equity Shares of Domestic Company listed on a recognized stock exchange||12 months|
|Equity Shares of Domestic Company not listed on a recognized stock exchange||24 months|
|Equity Shares of Foreign Company whether listed or not||24 months|
|Equity-oriented Mutual Funds or ETFs (Exchange Traded Funds)||12 months|
|Debt-oriented Mutual Funds or ETFs (Exchange Traded Funds)||36 months|
|Debentures or Bonds listed on a recognized stock exchange||12 months|
|Debentures or Bonds not listed on a recognized stock exchange||36 months|
|Immovable Property such as land, building or house property||24 months|
|Movable Property such as jewelry, car, painting, work of art||36 months|
Traders who would have invested into equity markets with a view to earning tax-free income in the form of Long Term Capital Gains would now have to pay tax as per the new rule. The announcement of 10% LTCG was made on 1st February 2018. Thus, an investor who was holding an investment in equity shares and equity mutual funds as on 31/01/2018, should not be required to pay tax on entire capital gains. Hence, to ensure that LTCG earned up to 31st January 2018 should not be taxed, the Capital Gains earned up to 31/01/2018 would be grandfathered using a formula.
For equity shares and equity mutual funds bought on or before 31/01/2018, the cost of acquisition should be calculated as follows:
- Lower of Fair Market Value as on 31/01/2018 or the Actual Selling Price
- Step 1 or Actual Cost Price whichever is higher
Section 112A – Calculation of Long Term Capital Gain Tax on Shares
The budget was announced on 01/02/2018 and so the provisions for tax on LTCG are different based on the date of purchase.
|Up to 31/01/18||01/02/18 Onwards|
|Date of Purchase||Shares bought on or before 31/01/2018||Shares bought on or after 01/02/2018|
|STCG (sold within 365 days)||STCG @ 15%||STCG @ 15%|
|LTCG (sold after 365 days)||SP = price at which shares are sold||SP = price at which shares are sold|
|CP = Follow these steps:
Higher of the following:
(i) Price as on 31.01.18 or Actual Selling Price whichever is less
(ii) Actual Cost
|CP = price at which shares are bought|
|LTCG = SP – CP||LTCG = SP – CP|
|Tax = 10% (LTCG – Rs.1,00,000)||Tax = 10% (LTCG – Rs.1,00,000)|
Examples for Grandfathering Rule
|Case I||Case II|
|Purchase Date||1st Jan 2018||10th Feb 2018|
|Sell Date||10th Jan 2020||10th Jan 2020|
|Grandfathering rule applicable||Yes||No|
|Actual Cost *||2,40,000 **||2,00,000|
= Sale Value – Actual Cost
|Exempt||Exempt up to INR 1 Lakh||Exempt up to INR 1 Lakh|
|Tax Liability||1,10,000 – 1,00,000= 10,000 * 10%
|1,50,000 – 1,00,000= 50,000 * 10%
*Note: Actual Cost is the Cost of Acquisition to calculate capital gains
**Calculation of Actual Cost using FMV (Case I)
|Condition||Amount (INR)||Qualifying Amount|
|Step 1||Lower of:
Actual Selling Price
FMV on 31st Jan 2018
3,50,000 or 2,40,000
|Step 2||Higher of:
Value in Step 1
2,40,000 or 2,00,000
Income Tax on Long Term Capital Gain
The tax rate of a capital asset is determined on the basis of the nature of capital gain i.e. LTCG or STCG.
|Listed equity share of a domestic company||Yes||10% in excess of INR 1 lac u/s 112A||15% u/s 111A|
|Listed equity share of a domestic company||No||10% without indexation||slab rate|
|Unlisted equity share of a domestic company||No||20% with indexation||slab rate|
|Listed equity share of a foreign company||Yes / No||10% without indexation||slab rate|
|Unlisted equity share of a foreign company||Yes / No||20% with indexation||slab rate|
|Equity Mutual Fund or ETF||Yes||10% in excess of INR 1 lac u/s 112A||15% u/s 111A|
|Debt Mutual Fund or ETF||No||20% with indexation||slab rate|
|Listed Debentures or Bonds||No||10% without indexation||slab rate|
|Unlisted Debentures or Bonds||No||20% without indexation||slab rate|
|Land, Building, House Property, Car, Jewellery, Paintings, Art of Work||NA||20% with indexation||slab rate|
Long Term Capital Gain Tax on Shares – Equity Shares and Equity Mutual Funds
|Date of Purchase||Date of Sale||Tax Treatment|
|On or before 31/01/2018||On or before 31/01/2018||Exempt u/s 10(38)|
|On or before 31/01/2018||Between 31/01/2018 and 01/04/2018||Exempt u/s 10(38)|
|On or before 31/01/2018||01/04/2018 onwards||Calculate LTCG as per the above table
* LTCG up to 31/01/2018 exempt
* LTCG after 31/01/2018 – Tax at 10% in excess of Rs. 1 lac
|On or after 31/01/2018||01/04/2018 onwards||Calculate LTCG as per the above table
Tax at 10% in excess of Rs. 1 lac
Exemption from LTCG
The taxpayer having income from the sale of a long term capital asset can claim an exemption under Section 54 to 54GB of the Income Tax Act if he/she fulfills the conditions.
A taxpayer can claim the exemption by reinvesting the proceeds from the sale into a specified capital asset. Such exemption would lower the capital gains and save taxes on the same. However, the taxpayer must hold the new asset for the specified period as per the relevant section. However, if he/she sells the asset before the specified time period, he/she must report it as an income in the relevant financial year and pay tax at the applicable rate.
The taxpayer has an option to open an account under the Capital Gains Account Scheme and park the sale proceeds in it till the time they invest in the specified asset to claim the Capital Gains exemption.
Yes. Under Budget 2018, the exemption under Sec 10(38) was removed. Further, a new Section 112A was introduced to levy 10% income tax on Long Term Capital Gains on the sale of equity shares, equity mutual funds and units of business trust in excess of Rs. 1 lac for a financial year. Sec 112A was applicable to FY 2018-19 (AY 2019-20) onwards.
LTCG is taxable at a flat 10% on income that is exceeding Rs. 1lk. Therefore, it is exempt up to Rs. 1lk.
No. Hence, STCG is taxable at a flat rate of 15% without any exemption.