Mr. Arun Jaitley proposed to tax long-term capital gains on Equity exceeding Rs 1 lakh @ 10 percent without indexation.However, it has created a lot of confusion among investors as how to plan the tax on portfolio .The Tax implemented is Prospective in nature and is applicable from 1st Feb 2018 @10% over and above 1 Lakh gain So it Means there is no Tax on Capital gains up to 31st Jan 2018 on older investments, however, any gain arising on them post 31st jan 2018 will be taxed as per new rules of 10% above 1 Lakh.

Is there any indexation benefit?

No ,Indexation will not be applicable.it refers to that there will be no adjustment of inflation or rising prices in the Profits so it will be flat tax payable whereas in case of debt funds indexation is allowed.

Does than mean You have to sell Now ?

Answer is No Since Your gain till yesterday i.e 31st Jan 2018 is Tax Free but Gain from Now onwards will be as per above assumption of 10% above 1 Lakh.

Let us try to make it clearer and easy to understood in Different Situations- 

Situation 1  When gain is less than 1 Lakh and holding Period is more than 1 Year

For Example if you have purchased Share worth Rs 1,00,000 in jan 2017 and Price on 31st Jan 2018 Is 1,20,000 and It is sold on 31st oct 2018 at 1,50,000 than tax will be applicable on (current price – Price on 31st jan 2018)*10% so Effectively it is (1,50,000-1,20,000)*10% = 3,000 Rs  (Please note this tax is applicable if holding period is more than 1 Year and total tax on long-term gain should be more than 1 Lakh but in this case it is only 3000 so effectively their is no tax )

Your Financial Year Gain is less than 1,00,000 than there is no Tax

 

Situation 2  When gain is less than 1 Lakh and holding Period is less than 1 Year

For Example if you have purchased Share worth Rs 1,00,000 in nov 2017 and Price on 31st Jan 2018 Is 1,20,000 and It is sold on 31st oct 2018 at 1,50,000 than tax will be applicable on (current price – Price of Purchase)*15% so Effectively it is (1,50,000-1,00,000)*15% = 7,500 Rs

Your Financial Year Gain is less than 1,00,000 but it gain is short term in nature so it is 7,500 Rs

Here time period is less than one Year so by default short-term capital gain is taken@15% and there is no consideration of value as on 31st jan 2018.

 

Situation 3  When Gain is More than 1 Lakh and Holding Period Is more than 1 Year

For Example if you have purchased Share worth Rs 1,00,000 in jan 2017 and Price on 31st Jan 2018 Is 2,20,000 and It is sold on 31st oct 2018 at 3,30,000 than effective gain will be  (current price – Price on 31st jan 2018) so Effectively it is (3,30,000-2,20,000) = 1,10,000 Rs

Your Effective taxable Gain is  1,10,000 less 1,00,000 Deduction as per new rules

Total  taxable gain for that year = (Total sales Proceeds – Total value as on 31st jan 2018) – 1,00,000 = (3,30,000-2,20,000)-1,00,000= 10,000 Rs

Tax on total gain = 10,000*10% = 1,000 Rs

Situation 4 – when Gain is more than 1 Lakh and Person is having no other income

Budget gives provision that if a person has capital gain of more than 1 Lakh but he is not having any other income or having negligible income from other sources below taxable slab than he is not required to pay long term capital gain tax upto  income tax slab.

being a resident, where the total income as reduced by such long-term capital gains is below the maximum amount which is not chargeable to income-tax, then, the long-term capital gains, for the purposes of clause (i), shall be reduced by the amount by which the total income as so reduced falls short of the maximum amount which is not chargeable to income-tax.

For Example if you have purchased Share worth Rs 1,00,000 in jan 2017 and Price on 31st Jan 2018 Is 2,20,000 and It is sold on 31st oct 2018 at 3,30,000 than gain will be on (current price – Price on 31st jan 2018)*10% so Effectively it is (3,30,000-2,20,000)*10% = 1,10,000 Rs

Total  taxable gain for that year = (Total sales Proceeds – Total value as on 31st jan 2018) – 1,00,000 = (3,30,000-2,20,000)-1,00,000= 10,000 Rs

Tax on total gain = 10,000*10% = 1,000 Rs

Net Tax payable will be Zero since person has no other income

What Situation 4 means?

Investing jointly in name of Senior citizen in Family who is having low or negligible income will be a good choice as it will  to an extent reduce tax to nil or negligible level

Disclaimer – The Above information is based on current proposal by finance minister and yet to be signed by an act,Please consult your Financial advisor.

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