India’s 2018 Budget delivered by Finance Minister, Mr. Arun Jaitley proposed a long-term capital gains tax of 10% on stocks and equity mutual funds exceeding Rs. 1 lakh without allowing any benefit of indexation. However, as per the Budget, all gains until 31st January, 2018 will be grandfathered. According to Wikipedia, a grandfather clause is a provision by which an old rule continues to apply to a certain existing situation while a new rule would apply to all future instances. This implies that you will not be taxed on any gains that you have already accumulated up until 31st January, 2018.
More recently, on 4th February, 2018, the Central Board of Direct Taxes (CBDT) issued a list of 24 frequently asked questions (FAQs) regarding taxation of long-term capital gains proposed in the Finance Bill, 2018. This list of FAQs further makes it clear that the new long term capital gains tax will be applicable only for sales on or after 1st April, 2018. The long-term capital gains tax exemption will continue for any sale between 1st February and 31st March, 2018 as per current taxation policies. To summarize, there is no change in the long term capital gains tax exemption for the financial year 2017-18.
MProfit has consistently been the preferred choice of solution amongst chartered accountants and investors for the computation of short-term and long-term capital gains. As the new long term capital gains tax change is not applicable for the current financial year FY2017-18, investors should continue using the existing version of MProfit to compute capital gains for the financial year FY 2017-18.
MPROFIT WILL PROVIDE SUPPORT FOR NEW CHANGES TO CAPITAL GAINS CALCULATIONS IN THE COMING MONTHS.
The scenarios below detail how long term capital gains will be calculated for sales on or after 1st April, 2018. In each of these scenarios, a certain asset is purchased on 1st January 2017 and sold on 1st April 2018. The Long Term Capital Gain calculation for this asset is now computed by determining what the Cost of Acquisition is for the asset, by comparing the values for Purchase Price (PP), Fair Market Value on 31st January 2018 (FMV) and Sale Price (SP):
| Scenario | Scenario Description | Purchase Price as on 01-Jan-2017 (PP) | Fair Market Value as on 31-Jan-2018 (FMV) | Sale Price as on 01-Apr-2018 (SP) | Cost Price for Capital Gains Calculation | Long Term Capital Gain |
|---|---|---|---|---|---|---|
| 1 | PP < FMV < SP | 100 | 200 | 250 | 200 | 50 |
| 2 | PP < SP < FMV | 100 | 200 | 150 | 150 | 0 |
| 3 | FMV < PP < SP | 100 | 50 | 150 | 100 | 50 |
| 4 | SP < PP < FMV | 100 | 200 | 50 | 100 | -50 |
| 5 | SP < FMV < PP | 100 | 50 | 25 | 100 | -75 |
| 6 | FMV < SP < PP | 100 | 50 | 75 | 100 | -25 |
| 7 | Bonus: PP = 0, FMV < SP | 0 | 200 | 250 | 200 | 50 |
| 8 | Bonus: PP = 0, SP < FMV | 0 | 200 | 150 | 150 | 0 |
If you would like to learn more about how MProfit simplifies capital gains for various assets, click here.
Click here to download the FAQ list published by CBDT.
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