Long Term Capital Gain (LTCG) tax was re-introduced in budget 2018 by our finance minister Mr. Arun Jaitely. There is 10% LTCG tax on the capital gains made above 1 lakh in equity. Long term period is still 1 year. There is no change in Short term capital gain (STCG) tax, which is still taxed at 15% for equity funds. The cost price reset date is set to 31st January, 2018, and the exemption period is till 31st March 2018. This is very confusing and lets discuss this in more detail here.
- The LTCG tax is 10% + Cess(4%) = 10.40% with no indexation benefit for equity investments.
- LTCG exemption limit is Rs. 1 lakh. This limit includes all the LTCG earned from all the equity investments put together. For example, if you earned a total LTCG of Rs 2 lakh by selling various investments throughout the year, the taxable LTCG is only Rs 1 lakh. The tax liability is Rs 10,000 (10 per cent of Rs 1 lakh) + Cess (4%).
- Fair Value / Cost reset date is 31st January 2018: If LTCG is booked in the next financial year (starting 1st April 2018) the cost price of the investment will be adjusted to the price as on 31st January 2018 for the tax liability calculation. However, if the investor has earned a loss with respect to the original purchase price, there is no LTCG tax to be paid.
- Exemption till 31st March 2018: This means that if you book LTCG before March this year, you are not liable to pay any tax even if the gains exceed Rs 1 Lakh.
- Dividend Distribution Tax (DDT) @10% on dividend from equity is introduced. Distributor will deduct this DDT before distributing dividend to the investors. There is surcharge@12% and cess@4% which amounts to 11.648%.
Here is the table to explain LTCG with examples -
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