LTCG on equities explained: How the 10% tax will impact your portfolio

Shishir Asthana

Moneycontrol Research

The government has finally done what the market feared. Long-term capital gains (LTCG) has been imposed on equity markets. The logic behind doing this was a large portion of the investment in the market was done by corporates and LLP entities. In the Budget speech, finance minister Arun Jaitley said that the total amount of exempted capital gains from listed shares and units is around Rs 3,67,000 crore for the assessment year 2017-18.

For an investor, the LTCG would mean that any investment sold after holding it for more than one year will now be taxed at a rate of 10 percent without giving any indexation benefits.

This means that the profit generated by purchasing any stock held for more than a year will be taxed at 10 percent, provided the profit is more than Rs 1 lakh.

Say for example an investment made on February 1 2018 for say Rs 500 and sold on or after February 1 2018 at a price higher than Rs 500 will be taxed. If the investment is sold at Rs 600, the profit generated is Rs 100 and the tax paid will be 10 percent of Rs 100 which works out to Rs 10.

Thankfully, the finance minister has considered grandfathering all gains up to January 31 2018. This means that the price of January 31 2018 will be locked in for calculation of gains for the investment made till one year before.

Assuming a stock is bought for Rs 250 on December 1 2017. The price of this stock is Rs 300 on January 31 2018. If the price on November 30 2018 is Rs 400 then the investor will not be taxed for the price move from Rs 250 to Rs 300 but will have to pay a 10 percent tax on the gain from Rs 300 to Rs 400.