Taxation of Long Term Capital Gains from A.Y. 2019-20

The Finance Act 2018 has made amendment in taxation of long Term Capital Gains on shares and securities.

Earlier, till Financial Year 2017-18 (Assessment Year 2018-19), capital gains on sale of shares and securities which were held for more than 12 months and Securities Transaction Tax (STT) was paid were exempt under section 10(38) of Income Tax Act, 1961. From Financial Year 2018-19 (Assessment Year 2019-20), such long term capital gain exceeding Rs. 1 lakh will be taxed at the rate of 10% (without indexation).

• How will cost of acquisition for assets acquired on or before 31/03/2018 be determined?

The assets purchased upto 31/01/2018 will be grandfathered. In other words, the cost of acquisition of such assets will be determined as under:

The Cost of Acquisition will be higher of:

1. Actual Cost of Acquisition AND
2. Lower of:

• Fair Market Value (FMV)* of such asset as on 31/01/2018 OR
• Sale value of such asset

*FMV, in case of listed shares or units will be the highest value on recognised stock exchange of such share or unit on 31/03/2018. If there is no trading on 31/01/2018, then FMV will be the highest value on recognised stock exchange on day immediately preceding 31/01/2108 on which it has been traded. FMV in case of unlisted unit will be the net asset value of such unit on 31/01/2018.

Let us understand the above with examples:

• What will be the taxability on Long Term Capital Gains on sale of equity shares and unit?

• When will tax be charged on such Long term Capital Gains?

 Tax will be charged only on transfer of such equity share or unit on or after 01/04/2018.

• Will the benefit of indexation be available?

 The benefit of indexation will not be available in computing such Long Term Capital Gains.

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

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

• Whether TDS is to be deducted in case of gains earned by resident taxpayer?

TDS is not required to be deducted from the payment of Long Term Capital Gains to a resident taxpayer. 

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

The FMV of the bonus shares and right shares as on 31/01/2018 will be taken as cost of acquisition and hence, the gains accrued upto 31/01/2018 will continue to be exempt.

• What will be the treatment of long-term capital loss arising from sale done between 1/02/2018 and 31/03/2018?

Since the exemption under section 10(38) will be available for sale done between 1/02/2018 and 31/03/2018, loss arising during this period will not be allowed to be set off or carried forward.

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

Loss arising from sale done on or after 1/04/2018 can be set-off against any other long term capital gains and balance loss can be carried forward to subsequent eight years for set-off against long term capital gains.