Even though the country was expecting it, it felt like a bomb when Mr.Jaitley reintroduced the LTCG on Shares and Equity Mutual Funds.
Here are the details.
The LTCG is 10%. No indexation benefits are available for the calculation of this LTCG. However, the gains are ‘grandfathered’ upto 31st Jan 2018.
What this means is that even if one has bought the Equity Mutual Funds say, 10 years back at a NAV of Rs.20. Say now it has a NAV of Rs.250 and one sells it at this price, then the capital gains should be (250 – 20) x 10% = Rs.23. But this would not be fair, since the rule came out only on the 1st of Feb, 2018, so instead of the original buying price of Rs.20, the actual value (highest value in case of a stock) on the 31st of January 2018 will be considered as the buying price. Say, the NAV of the MF was Rs.240 on 31st January 2018, then the capital gains will be (250 – 240) x 10% = Re.1.
There is another part to this rule – the LTCG is applicable only for gains above Rs.1 lac. To take advantage of this exemption, I suggest that one should analyse the investments and over a financial year, should sell some MFs / Shares and book profit of Rs.1 lac in the year, even if the money is not needed. One can buy back the MF / Shares immediately. The advantage is the increase in the buying price (on paper) without paying any tax and when one eventually sells those MFs / Shares, the tax incidence will be much lower.