The re-introduced Long-Term Capital Gains (LTCG) tax explained through four scenarios
The long-term capital gains arising from transfer of listed equity shares or units of an equity-oriented fund or unit of business trust, were exempt under erstwhile Section 10(38), if the same were subject to STT. Similar income in financial year 2018-19 in excess of Rs 1 lakh, is proposed to be taxed at the rate of 10 per cent without any indexation benefit. However, the gains up to January 31, 2018 will not attract the said tax to the extent of the fair market value as on January 31, 2018.
Long-term capital gains above Rs 1 lakh on the sale of equity shares and equity oriented mutual funds to be taxed at 10 per cent without giving the benefit of indexation. However, capital gains tax for until January 31, 2018 will be grandfathered.
Scenario 1: In a situation whereby an equity share is acquired on January 1, 2017 at Rs 100 and its fair market value is Rs 200 on January 31, 2018 and it is sold on April 1, 2018 at Rs 250. As the actual cost of acquisition is less than the fair market value, the latter (Rs 200) will be taken as the cost of acquisition and the long-term capital gain will be Rs 50 (selling price minus cost of acquisition).
Scenario 2: If an equity share is acquired on January 1, 2017 at Rs 100 and its fair market value is Rs 200 on January 31, 2018 but it is sold on April 1, 2018 at Rs 150. In this case, the fair market value is not only higher than the actual cost of acquisition but it is also higher than the sale value. Accordingly, the sale value of Rs 150 will be taken as the cost of acquisition, too, and the long-term capital gain will be NIL (Rs 150 minus Rs 150).
Scenario 3: Assume an equity share is acquired on January 1, 2017 at Rs 100 but its fair market value is lower at Rs 50 on January 31, 2018 and it is then sold on April 1, 2018 at Rs 150. In this case, since the actual cost of acquisition is higher than the fair market value, this will be the value used for calculating long-term capital gains. Hence, the taxable amount in this example is Rs 50 (selling price minus cost of acquisition).
Scenario 4: Let us assume an equity share is acquired on January 1, 2017 at Rs 100 and its fair market value is Rs 200 on January 31, 2018 but it is sold at a loss on April 1, 2018, say at Rs 50. Here, the sale value is less than the fair market value as well as the actual cost of acquisition. Therefore, the purchasing price of Rs 100 will be taken as the cost of acquisition and the long-term capital loss will be Rs 50 (Rs 50 – Rs 100).
