Budget 2018: LTCG Tax explained
Finance Minister, Arun Jaitley in his Budget speech proposed to tax Long-Term Capital Gain (LTCG) earned from equity. On Thursday, the Section 112 of the Income Tax Act was amended to provide tax on LTCG on the profits above Rs. 1,00,000/- without indexation benefit.
For the purpose of taxation, Cost price shall be higher of:
1) Actual cost price at the date of purchase or
2) Highest price as on January 31, 2018.
Long-term gain before January 31, shall not be taxable and capital loss shall be allowed to be set off (case when actual cost is higher than January 31). This will provide relief to ace/high investors with massive capital gain from stock market. Please note that tax on STCG shall continue to be taxable at 15 per cent.
To clear the doubt of our investors, we have illustrated two scenarios when stock has been purchased before or on January 31, 2018:
Case 1: When Actual cost price is higher than 31/01/2018 price
| Particulars | Scenario 1 | Scenario 2 |
| Actual Cost | 100 | 100 |
| Highest price on 31/01/2018 | 70 | 80 |
| Presumed Cost Price | 100 | 100 |
| Sale Price after 365 days | 200 | 80 |
| Capital Gain/(Loss) | 100 | (20) |
| No. of shares | 5000 | 5000 |
| Total Capital Gain/(Loss) | 5,00,000 | (1,00,000) |
| Deduction of Rs. 1,00,000 | 1,00,000 | NA |
| Capital Gain for tax calculation | 4,00,000 | Loss can be set off against LTCG |
| Tax @ 10% | 40,000 | NA |
Case 2: When Actual cost price is lower than 31/01/2018 price
| Particulars | Scenario 1 | Scenario 2 |
| Actual Cost | 100 | 80 |
| Highest price on 31/01/2018 | 130 | 130 |
| Presumed Cost Price | 130 | 130 |
| Sale Price after 365 days | 200 | 100 |
| Capital Gain/(Loss) | 70 | (30) |
| No. of shares | 5000 | 5000 |
| Total Capital Gain/(Loss) | 3,50,000 | (1,50,000) |
| Deduction of Rs. 1,00,000 | 1,00,000 | NA |
| Capital Gain for tax calculation | 2,50,000 | Loss can be set off against LTCG |
| Tax @ 10% | 25,000 | NA |