New Long Term Capital Gains Tax Rate 2018 : 10%

Long Term Capital Gains Tax Rate 2018

What is new long term capital gains tax rate 2018 ? This is now one of the most common asked questions after budget 2018. After 14 long years of exemption government has reintroduced long term capital gain tax or LTCG tax.

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New Long Term Capital Gains Tax Rate 2018

Here is few key points.

What is long term capital gains (LTCG) tax?

It is the tax paid on profit generated by an asset such as real estate and shares (equities). Earlier there was no long term capital gains tax rate if held for more than 1 year. But now Finance minister Mr Arun Jaitely re-introduced it.

What is this new long term capital gains tax rate 2018?

In a simple word if the capital gain is more than 1 lakh then you have to pay 10% tax provided holding period is more than 1 year. This rule is applicable from April 1st 2018.

Note that if the holding is less than 1 year it attracts same old 15% tax rate.

What happens if you have bought shares before April 1st?

If you have bought shared before Jan 31st then you don’t have to pay any tax on your gains until Jan 31st.

In this scenario LTCG tax applied will be based on purchase price or closing price as on Jan 31st, which is higher.

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Some FAQ on new long term capital gains tax rate 2018

Since the introduction of the Finance Bill, 2018 on 1st February, 2018, several queries have been raised regarding  new long term capital gains tax rate 2018. Here are few FAQs.

What is the date from which the holding period will be counted?

The holding period will be counted from the date of acquisition.

Whether tax will be deducted at source in case of gains by resident tax payer?

No. There will be no deduction of tax at source from the payment of long-term capital gains to a resident tax payer.

What will be the cost of acquisition in the case of bonus shares acquired before 1st February 2018?

The cost of acquisition of bonus shares acquired before 31st January, 2018 will be
determined as per Finance Bill, 2018. Therefore, the fair market value of the bonus shares as on 31st January, 2018 will be taken as cost of acquisition , and hence, the gains accrued upto 31st January, 2018 will continue to be exempt.

What will be the treatment of long-term capital loss arising from transfer made on or after 1st April, 2018?

Long-term capital loss arising from transfer made on or after 1st April, 2018 will be allowed to be set-off and carried forward in accordance with existing provisions of the Act. Therefore, it can be set-off against any other long-term capital gains and unabsorbed loss can be carried forward to subsequent eight years for set-off against long-term capital gains.

Different scenarios on new long term capital gains tax rate 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. 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 (150 – 150).

Scenario 2

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 3

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.

Source: incometaxindia

What should be your new strategy post this new long term capital gains tax rate 2018?

Simply saying your invest should be now completely risk and return specific excluding tax consideration like earlier.

There were few cases where investors would drag the period just to get tax exepmotion. Now the tax benefit is just 5% (15% short term -10% long term).

Finally this could induce some volatility in short term but it has no effect on long term.

Hope you find above post on new long term capital gains tax rate 2018 useful. Add a comment to let us know if you have any thoughts.

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