How to save long term capital gain after budget 2018

Fwd:

Long Term Capital Gains Tax – FAQs



1.       What is the budget proposal on LTCG for equities?

Ans – So far, any LT Capital gains made on equities on Exchanges was exempt. The Govt has now proposed an 10% LTCG tax on gains made above Rs 1 Lakh



2.       When is the tax payable?

Ans – Since it is a Direct Tax proposal it will normally be applicable for the Assessment Year FY19-20 (Financial Year FY18-19). In other words, the LT Capital gains, of over Rs 1 Lakh, made for the year FY18-19 will be liable to tax at 10%.



3.       Does it mean that there is no LTCG for Assessment Year FY18-19 (Financial Year FY17-18)?

Ans – One needs to understand the exact proposal in fine print. However, it appears that any LTCG will not be applicable for FY18-19 on plain read. This question frankly needs greater degree of expert study.



4.       What is the relevance of the cut-off date of 31st Jan 2018?

Ans – The FM has proposed grandfathering of LT Capital gains upto 31st Jan 2018. Any incremental LT Capital gains after that will be counted as LT Capital gains for the new tax.



5.       What happens to my tax liability if I sell stocks starting today held for more than a year?

Ans – As for LT Capital gains made in Financial Year 17-18 (i.e sale upto 31st Mar 2018), it appears there is no tax. However, any sale made after 1st April 2018 will be liable to the new LTCG tax. One needs to segregate this LT capital gain into two parts

a) Part one – is LT Capital gains made upto 31st Jan 2018. This will be highest price of the stock on 31st Jan 2018 minus the cost of acquiring stock;

b) Part two – is LT Capital gains made after 31st Jan 2018. This will be sale price minus highest price of the stock on 31st Jan 2018.

While Part one will be exempt. It is the Part two that will be assessed as LT Capital gains (it can also be a Capital loss) for Tax. Tax on this will be computed at the rate of 10% (+ cess of 3%) only if exceeds Rs 1 Lakh



6.       What should be the strategy now on equity investments?

Ans – Any equity investor wishing to reduce the LT Capital gains tax liability can sell stocks starting today till 31st March 2018 and incur zero tax provided the holding period is more than a year. However, one can continue to buy equity shares without any hesitation. Any future sales after 31st March 2018 has to be judiciously chosen to minimize the tax liability. Assuming equity investments yield a return of 15% every year, an investment of Rs6.66L each year will rise to Rs7.66L in a year and gains booked thereof will be tax free. Even if the gains exceed 15% to say 25%, the LT gains Tax will be Rs6,667/- only