“Long Term Capital Gains on Equities will now be taxed at 10%.” This is the major news that is now making headlines across all media platforms. Thanks to the latest proposal made in Budget 2018-19.
So, henceforth an investor of Stocks or Equity mutual funds has to pay 10% as taxes on Long Term Capital Gains (realized).
Before discussing on this proposal, lets understand what is LTCG & holding period??
Capital asset typically refers to anything that you own for personal or investment purposes. It includes all kinds of property; movable or immovable, tangible or intangible, fixed or circulating.
Capital assets are further classified as Financial Assets and Non-Financial Assets. Financial assets are intangible and represent the monetary value of a physical item. Stocks (Shares) and mutual funds are the best examples of Financial Assets.
The profit (if any) that you make on your mutual fund or equity investments, when you redeem or sell the MF units is referred to as Capital Gains. It can be a Short Term Capital Gain (STCG) or a Long Term Capital Gain (LTCG) depending upon the ‘Period of Holding’. The tax that is applicable on these profits is known as ‘Capital Gains Tax’.
MF schemes that invest at least 65% of its fund corpus into equity and equity related instruments are known as equity mutual funds. Examples are : Large cap, Mid-cap, Balanced funds (equity oriented), Sector funds etc.,
Capital gains on Mutual funds/Equities could be either long term capital gains or short term capital gains, depending on your investment horizon.
Long Term Capital Gains
Short Term Capital Gains
As per the existing tax rule, equity investors need not pay any tax on long term capital gains. If investments in equity mutual funds or Stocks are sold within a year, gains will be treated as short term capital gains and taxed at 15 %.
The finance minister in his Budget 2018-19, has proposed to tax long term capitals gains of over Rs 1 lakh at 10% without indexation benefit.
For Example :
(Click on the below image to open it in a new browser window.)
The Securities Transaction Tax structure has been kept unchanged. However, a new proposal to introduce Dividend Distribution Tax @ 10% on Equity oriented Mutual Funds has been made. (The LTCG tax regime would be unchanged for unlisted equity shares where STT is not paid on purchase or sale.)
These amendments will take effect on transactions made from 1st April, 2019 and will, accordingly, apply in relation to the assessment year 2019-20 and subsequent assessment years.
The cost of acquisitions in respect of the long term capital asset acquired by the assessee before the 1st day of February,
2018 , shall be deemed to be the higher of ;
a) the actual cost of acquisition of such asset (and)
b) the lower of –
(I) the fair market value of such asset as on 31-01-2018 and
(II) the full value of consideration received or accruing as a result of the transfer of the capital asset.
For example: If you bought a share for Rs 1,000 and have held it for more than 12 months (to qualify for LTCG) and say the fair market value (FMV) of the asset on 31.01.2018 is Rs 1,200 and you sell it for Rs 1,300 on 1-June-2018 then the LTCG is calculate as follows
Any redemption made between 01-Feb-2018 and 31-March-2018, 10% tax rate on LTCG is not applicable.
My Opinion on levying 10% tax on LTCG
It is a known fact that many of the investors pick Shares or Equity mutual funds to make tax-free long term capital gains. So, this new proposal will surely disappoint them.
However, I always believe that investing in a particular financial product based on taxation is not advisable, as tax rules can change anytime. The impact of these changes can be positive or negative for an investor. In one of my very old articles, I have advised, ‘Think beyond TAXES when investing!’, do not invest in a product just because it offers tax-saving feature. Tax-saving is only a value addition.
When we invest in Equity securities, we generally do it with an investment objective of ‘long-term’, and because they have a potential to give us decent real-rate of return than many other Asset classes.
If you believe that there is no alternative to Stocks or Equity mutual funds for achieving your long-term financial goals, kindly continue with your investments in Equities., even if they are taxable now! Do we have any other better investment option, especially for small and retail investors??
Do you believe that this proposal will have a major negative impact on Indian Equity markets? Will record in-flows to Mutual Funds stop or reduce due to 10% tax on LTCG? Kindly share your views, cheers!
Continue reading : ‘Budget 2018 LTCG Tax on Equity Mutual Funds & Important Implications‘
(Featured image courtesy : laotiantimes.com) (References : The Economic Times) (Post published on : 01-February-2018)
This post was last modified on July 12, 2023 9:34 am
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in FY 2020-21 as a 60 year old pensioner i am receiving about Rs3.25 lakhs.
i am eligible for a std deduction of Rs.50000/-,deduction of interest amount of Rs.58000/-on housing loan and mediclaim policy amount of
Rs.19000/-. Under 80C eligible for Rs.150000/- on housing loan and school fee. The balance income comes to about Rs.50000/-.However i am having STCG of Rs.240000/- and LTCG of Rs.340000/-from equity MFs.Can i offset STCG to the basic exemption limit of 3 lakhs eligible for senior citizens?(income tax calculator of IT dept does not support such calculation.Hence this query)
Dear vijayan ji,
Suggest you to kindly go through below articles to understand the 'offset' concept wrt STCG against basic exemption limit...
Related articles :
* How to adjust Short Term Capital Gains against the Basic Exemption Limit? | Tax Rules & Examples
* How to save Income Tax by adjusting Long Term Capital Gains against Basic Exemption Limit?
this is a good blog explaining various aspect on this topic.I would like to know- can LTCG on debt fund without indexation be added into income from other sources and tax paid as per IT slab.(like STCG on debt). and if it is below taxable limit (rs300000 for sr.ctzn).no tax be paid on such LTCG.
Dear devendra,
Taxes on LTCG on Debt funds can not be disclosed under the head 'Income from other sources'.
It has to be done under 'Capital Gains' section of ITR only.
LTCG can be adjusted against basic exemption limit only after adjusting all other income.
Any investment made u/s 80C or any other deduction under Chapter VI-A (various sections) cannot be adjusted against LTCG.
After doing this, if taxable income is Nil then no tax is payable.
I want to invest in Equity oriented large cap funds from 2018 onwards for the next 5 years through SIP route. I will be holding the investements and not selling or reedeming and amount. As per new budget rules do I need to pay income tax on these investements for the next five yeras?
Dear sameer,
As per existing tax rule, long term capital gains (if any) on redemption of Equity fund units are chargeable to tax.
Kindly read : Mutual Funds Capital Gains Taxation Rules FY 2018-19 (AY 2019-20) | Capital Gains Tax Rates Chart
Hello Sir,
I have invested in September 2014 - Mutual Fund - Axis Hybrid Fund - Series 15 (1275 Days) Rs.1,30,000/- & on redemption received Rs.161,000/- in Mar-18.
Please confirm whether this LTCG of Rs. 31000/- is taxable or not. If yes @ what rate ?
According to the finance minister in his Budget 2018-19, has proposed to tax long term capitals gains of over Rs 1 lakh at 10% without indexation benefit.
Hello Sir,
I have invested in September 2014 – Mutual Fund – Axis Hybrid Fund – Series 15 (1275 Days) Rs.1,30,000/- & on redemption received Rs.161,000/- in Mar-18.
Please confirm whether this LTCG of Rs. 31000/- is taxable or not. If yes @ what rate ?
According to the finance minister in his Budget 2018-19, has proposed to tax long term capitals gains of over Rs 1 lakh at 10% without indexation benefit.
Dear Aditi,
The mentioned new tax rules is applicable for Equity Mutual Funds/Stocks.
The fund Axis Hybrid Fund – Series 15 is a Debt oriented fund.
As you have held
Hello Sir,
Kindly confirm whether the amount received on redemption from this debt fund is Rs.31000/- is chargeable to tax or not.
Regards,
Aditi Sharma
Dear Aditi,
The mentioned new tax rules is applicable for Equity Mutual Funds/Stocks.
The fund Axis Hybrid Fund – Series 15 is a Debt oriented fund.
As you have held it for more than 3 years, the gains are LTCG and are taxable at 20% (with indexation).
Kindly read : Mutual Funds Capital Gains Taxation Rules FY 2018-19 (AY 2019-20) | Capital Gains Tax Rates Chart
SIR
I received intimation under section 143(1) on 5th june 2018 to pay 1870 . I paid on 13th june using link provided(E PAY TAX) in the pdf attchement sent by cpc. amount got deducted from my account and it is showing in my bank transaction as (to transfer INB OLTAS) REF NO.001328352889 IK00QCQXV4 . BUT i closed my pc immediately after amount deducted as i was in hurry to leave for home. i have not used any challan or received anything from CPC.. wat should i do... please help..
Thanxs & regards
Prashant
Dear PRASHANT ..Kindly refer to our conversation in FB.
Hi Shreekanth,
I have just started following your posts Today only and Infact covered few on various topics.Your writings are very informative and indeed real decisive.
I have a situation related to a fresh ULIP plan started February this year, and I need your opinion on this.
I “have fallen into trap”( though it may or may not be , but it is yet another ULIP) of ICICI prudential Elite Super Life . Annual premium = 2 Lakh , SA = 20 Lakhs, PPT = 7 years. I have been told that it is invested on a new fund (Active asset balanced fund) which is less than 1 year old since its inception. Looks highly prospective!!!
However, I am deciding to exit this plan from now on only.
The thing is , 10% of the money is already lost in charges, so actual investment is around 1.8 lacs.
Should I dump it on DC fund to earn a meagre 4% , just to recover my 2 lakhs ( a bit more may be after 5 years) ?
Many thanks
The vital question is would it be worth to continue this policy ?
Dear Abhijit,
Your reason for selecting this plan?
Suggest you to go through my article @ Mutual Funds Vs ULIPs – Which is better? | Post Budget (2018) LTCG Tax proposal on Equity Mutual Funds & Shares
Hi Shree,
Thank you for reply and providing the article .
To be honest my plan is wealth creation in long term and basically tried to invest in MF.
I have another open ended MF as well and recently started SIP with 10K per month , 5K each in two different funds.
What would be your take on this situation - will it be wise to discontinue the ULIP and focus on MF and SIPs ?
Because if I have to continue the SIPs which is 1.2 lakh p.a there is no point in the above ULIP.
Also I maintain a PPF before I stepped into the equity market.
Many Thanks.
Dear Abhijit,
As indicated by you, bulk of the ULIP charges will be levied upfront in the initial few years.
Given the transparency, flexibility, returns etc., I prefer to stick to MFs to ULIPs. Though LTCG of 10% is applicable on MFs.
Also, give importance to Asset allocation.
Sir, can you explain the practical example of calculating DDT (Dividend Distribution Tax) of Equity Oriented Mutual fund.. Means I need to understand My Investment is Rs. 100000 of 10000 units of Rs. 10 each.. And they declare 10% dividend.. Please show the calculation based on the recent budget for FY 2018-19.
Dear Mr Shah,
You may kindly go through this article (How is Dividend Distribution Tax calculated - 10% tax - Budget 2018).
Dear Sree
Hope you are well.
Since Birla Dynamic fund is not performing up to my expectations since a long time, i am thinking of doing an STP. The amount is 1 lakh, I have two options that I can think of. Please advise which one is better or please suggest any other if you think that would be the right thing to do:
1. Rs 20k STP to ABSL Frontline Equity Fund -Grow-DIRECT
2. Lump-sum in ABSL MIP II - Wealth 25 - Growth-DIRECT
As always, you advice is much appreciated.
Kind regards
Dear Ksam,
Almost all the debt funds are giving very nominal returns as there is no clear trend (upward/further downward) for interest rate cycle.
Ideally Dynamic bond funds are to be held for medium to long-term to get decent returns, but let's not expect double digit returns from Debt oriented funds.
May I know your investment time-frame for this?
Hi Sree
I had initially kept this for medium term, but as I have funds parked in Debt, was thinking of moving this money to a slightly aggressive fund.
Kind regards
Dear Ksam,
If your investment time frame is say around 3 to 5 years and would like to take higher risk, can consider MIP fund (or) Equity Savings fund.
Thanks Sree
Which of the below you advice:
1. Rs 20k STP to ABSL Frontline Equity Fund -Grow-DIRECT
2. Move the amount in ABSL MIP II – Wealth 25 – Growth-DIRECT
3. Or any other suggestion
Kind regards.
Dear Ksam,
1 - This is a pure equity large-cap oriented fund.
It all depends on how much risk you can afford to take.
The risk profile increases in ascending order for the below categories ;
Debt Funds
MIP Funds
Equity savings funds
Equity oriented balanced funds
Large cap funds
Diversified fund
Mid/Small cap funds.
The above mentioned funds are good ones in terms of performance.
but it depends on which amc you choose.
Hi,
If I switch money from equity fund to debt fund within the fund house, will this LTCG applicable on equity fund?
Also, if I switch fund in my NPS tier II, will it attract STCG/LTCG?
Could you pls. Help.
Thanks
alagappan
Dear Alagappan,
Yes, switching between the MF schemes do attract tax implications.
As per the PFRDA – the new long-term capital gains tax will have an impact on the Tier II account, also known as a non-pension account, but will not have any impact on Tier-1 account.
Kindly go through this article ..
Is this applicable to all the assesse's ? Individual / companies ? what about the mutual fund or asset management companies ? does this leads to double taxation in the hands of both individual and the Fund manager / AMC ?
Dear Akshatha,
Double taxation happens in case of Dividend option of schemes.
AMCs have to pay 10% on Dividend payouts. Also, the investors have to pay 10% on capital gains (if any).