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Equity: Four Scenarios Of LTCG Tax Explained By CBDT

How LTCG Tax will effect my mutual funds investment

LTCG Tax By CBDT

The Finance Minister, Arun Jaitley in his Budget announced a 10% Long Term Capital Gains Tax (LTCG) on stocks and equity-oriented mutual funds if the amount of gains exceeded Rs 1 lakh.

Following this announcement, the Central Board of Direct Taxes (CBDT) has explained how the tax would work in different scenarios. The board has given four different scenarios to explain the impact of the tax on shares purchased before January 31, 2018.

Scenario 1: 
  • Equity share is purchased on 1st of January, 2017 at Rs 1000.
  • Market value on 31st of January, 2018 is Rs 2000.
  • And, It is sold on 1st of April, 2018 at Rs 2500. 

Here, As the actual cost of purchase is less than the fair market value as on 31st of January, 2018, the market value of Rs. 2000 will be taken as the cost of purchase and the long-term capital gain will be Rs 500 (Rs. 2500 – Rs. 2000).

Scenario 2: 
  • Equity share is purchased on 1st of January, 2017 at Rs. 1000. 
  • Market value on 31st of January, 2018 is Rs. 2000 .
  • And, It is sold on 1st of April, 2018 at Rs. 1500. 

Here, In this case, the actual cost of purchase is less than the market value as on 31st of January, 2018. However, the sale value is also less than the market value as on 31st of January, 2018. Accordingly, the sale value of Rs. 1500 will be taken as the cost of acquisition and the long-term capital gain will be NIL (Rs. 1500 – Rs. 1500).

Scenario 3: 
  • Equity share is purchased on 1st of January, 2017 at Rs. 1000. 
  • Market value on 31st of January, 2018 is Rs. 500.
  • And, It is sold on 1st of April, 2018 at Rs. 1500. 

Here, In this case, the market value as on 31st of January, 2018 is less than the actual cost of purchase, and therefore, the actual cost of Rs. 1000 will be taken as actual cost of acquisition and the long-term capital gain will be Rs. 500 (Rs. 1500 – Rs. 1000).

Scenario 4: 
  • Equity share is acquired on 1st of January, 2017 at Rs. 1000. 
  • Market value on 31st of January, 2018 is Rs. 2000.
  • And, It is sold on 1st of April, 2018 at Rs. 500. 

Here, In this case, the actual cost of purchase is less than the market value as on 31st January, 2018. The sale value is less than the market value as on 31st of January, 2018 and also the actual cost of acquisition. Therefore, the actual cost of Rs. 1000 will be taken as the cost of purchase in this case. Hence, the long-term capital loss will be Rs. 500 (Rs. 500 – Rs. 1000) in this case

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