Budget 2018 has introduced significant changes to the rules governing taxation of capital gains on sale of listed equity shares. Till date, long term gains from sale of listed shares were exempt from tax. Starting 1-Apr-2018, this is going to change! Such capital gains, over Rs. 100,000 would be taxed at 10%.
What can you do to plan your taxes better?
If you are planning to sell your investments soon, why sell them after 31-Mar-2018? Why not sell them before!
We are on 27th March and there are 4 more days to go. If you have plans of liquidating any of your investments in listed equity shares or equity oriented mutual funds (EOMF), you can consider selling them before 31-Mar-2018. Such sale will not attract capital gains tax. Here’s what you need to keep in mind
- Ensure that the listed shares / EOMF are ‘long-term’, i.e. you have held them for a period of more than 12 months.
- Think of a sale only if the gains are significantly more than Rs. 100,000. Where the gains are lesser than that, you can as well sell them in FY 2018-19 (please note that gains upto Rs. 100,000 are exempt from tax)
- The markets have not been performing well over the last few weeks. While SENSEX has moved close to 3,000 points since March 2017 (~ 29,000 v/s 33,000 today), it is important to check the selling price & the gains you could make. Potential tax savings should not be the sole driver to take a decision to exit your holdings!
Kindly note that from 1-Apr-2018, all long term capital gains (i.e. held for more than 12 months) arising from the sale of listed equity shares / EOMF would be subject to 10% tax. Gains upto 31-Jan-2018 have been ‘grandfathered’, i.e. these gains have been subsumed within the cost of acquisition. Subject to the rules prescribed, long term gains over and above the fair market value on 31-Jan would be subject to tax.
Given the lower rate of 10% (long term capital gains are otherwise subject to 20% tax), no indexation benefit shall be allowed on the cost of acquisition. Further, only gains above Rs. 100,000 would be subject to tax. Any gains below this limit would continue to be tax free.
Please feel free to reach out to us on pavan@bclindia.in or ankush@bclindia.in if you have any further questions. We would be glad to be of your assistance.
