What is LTCG Tax (Long Term Captial Gain)

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LTCG

What is Long Term Capital Gain

It is the tax which is to be paid when you sell your long-term equity or equity Mutual Funds. LTCG was introduced in this year budget. It will be charged @ 10% to the individuals who holds equity or Mutual Fund for more than one year. The minimum amount should exceed 1 lakh in total in one fiscal year, then only LTCG is charged on the gains on the investment.

LTCG is effective for transactions done from April 1, 2018. LTCG on investment realized after 31.3.2018 by an individual will remain tax exempt up to 1 lakh in one fiscal year, and LTCG will be charged @ 10% if the amount exceeds 1 lakh in one fiscal year. For Example if your total investment is 1,30,000 FY2018-19 then LTCG will only be taxed for 30,000.

LTCG will be taxed as follows

The cost of acquisition of the share or unit bought before Feb 1, 2018, will be the higher of :
a) the actual cost of acquisition of the asset
b) The lower of : (i) The fair market value of this asset(highest price of share on stock exchange on 31.1.2018 or when share was last traded. NAV of unit in case of a mutual fund unit) and (ii) The sale value received/accrued when the share/unit is sold.

let us take an example: If you bought a share for Rs 100 and have held it for more than 12 months,  and say the fair market value of the asset on 31.01.2018 is Rs 120 and you sell it for Rs 130 on 1.5.2018 then the cost of acquisition of this share would be Rs 120. You would have realised LTCG of Rs 130 minus Rs 120 i.e. Rs 10.

If you sold the share for Rs 110 on 1.5.2018 then your cost of acquisition would be Rs 110.

If you sold the share for Rs 90 on 1.5.2018 then your cost of acquisition would be Rs 100.
LTCG would be computed as = Selling price – actual cost of acquisition.

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 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.


Also published on Medium.