Need Tally
for Clients?

Contact Us! Here

  Tally Auditor

License (Renewal)
  Tally Gold

License Renewal

  Tally Silver

License Renewal
  Tally Silver

New Licence
  Tally Gold

New Licence
 
Open DEMAT Account with in 24 Hrs and start investing now!
« Direct Tax »
Open DEMAT Account in 24 hrs
 CBDT drops small tax demands but not TCS, TDS claims
 ITR Refund: Awaiting money from Income Tax? Here's why you have not yet received your amount
 Income Tax Notice: What to do if you receive a Section 143 (1) notice from taxman?
 Average tax return processing time cut to 10 days: CBDT
 7 types of Income Tax Notice ITR filers may receive for AY 2023-24
 ITR filing: Do these advance preparations before filing your income tax return
 What are the strategies to maximize tax refunds after submitting an income tax return (ITR)?
 ITR filing: Tax rules on income from house property that your should know
 CBDT likely to issue rules on angel tax next week
 Pension Taxation: Everything you need to know for ITR filing
 Income tax guide on pension: How to file pension income in ITR?

Long Term Capital Gain under Finance Bill 2018
February, 16th 2018

Taxation on Long Term Capital Gain

Under the existing regime, long term capital gains arising from transfer of long term capital assets, being equity shares of a company or a unit of equity oriented fund or a unit of business trust, is exempt from income-tax under clause (38) of section 10 of the Act.

The government has proposed to bring back taxation on Long Term Capital Gain arising from the transfer of Long Term Assets being equity shares of a company or a unit of equity oriented fund or a unit of business trust (herein called capital assets) through the Finance Bill 2018. The government through Clause 31 of Finance Bill 2018 has proposed to introduce a new section 112A in the Income Tax Act and to withdraw the exemption under Clause 38 of Section 10.

The proposed Section 112A shall come into force from 1st April 2018. The proposed taxation shall apply to transfer made on or after 1st April 2018. Read with all its provisions and provisos the section shall have the following implications.

Capital gain on transfer of Capital Assets shall be taxable @ 10 % if the following conditions are satisfied.:

In case of equity shares Security Transaction Tax should have been paid on sale as well as acquisition of the equity shares.
The period of holding is a minimum of twelve months.
The amount of capital gain should exceed ? 1,00,000. (Exempt up-to ? 1,00,000/-)
The government intends to keep the exemption of STT on purchase of equity shares as per notification 43/2017 dated 5th June 2017.

It is also proposed that the benefit of First and Second proviso to section 48 i.e. indexation shall be not be application to this section. Deduction under Chapter VI-A shall also be not available while computing the tax on Capital Gains.

Another important issue worth looking at is the determination of cost of acquisition.

As per the Clause 31 of Finance Bill 2018:

The cost of acquisition for the purposes of computing capital gains referred to in sub-section (1) 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-

the actual cost of acquisition of such asset; and
the lower of-
the fair market value of such asset; and
the full value of consideration received or accruing as a result of the transfer of the capital asset.
To understand the above clause let’s take a look at a few illustrations.

Illustration 1:

An equity share was acquired on 1st of January, 2017 at ? 1000, its fair market value as on 31st January 2018 is ? 2500. The Assessee sold it on 1st of April, 2018 at ? 3000

As the actual cost of acquisition is less than the fair market value as on 31st of January, 2018, accordingly, the cost of acquisition would be higher of:

actual cost of acquisition : ? 1000/- and
Lower of :
Fair market value : ? 2500/-
Sale consideration: ? 3000
Which comes to ? 2500/-

The long-term capital gain will be ? 500 (Rs. 3000 – ? 2500).

Illustration 2:

An equity share was acquired on 1st of January, 2017 at ? 1000, its fair market value is ? 2500 on 31st of January, 2018 and it is sold on 1st of April, 2018 at ? 1500.

In this case, the actual cost of acquisition is less than the fair market value as on 31st of January, 2018. However, the sale value is also less than the fair market value as on 31st of January, 2018. Accordingly, the cost of acquisition would be higher of:

actual cost of acquisition : ? 1000/- and
Lower of :
Fair market value : ? 2500/-
Sale consideration: ? 1500
Which comes to ? 1500/-

This the long-term capital gain will be NIL (Rs. 1500 – ? 1500).

Illustration 3:

An equity share is acquired on 1st of January, 2017 at ? 1000, its fair market value is ? 500 on 31st of January, 2018 and it is sold on 1st of April, 2018 at ? 1500.

Accordingly, the cost of acquisition would be higher of:

actual cost of acquisition: ? 1000/- and
Lower of :
Fair market value: ? 500/-
Sale consideration: ? 1500
Which comes to ? 1000/-

This the long-term capital gain will be ? 500 (Rs. 1500 – ? 1000).

Illustration 4:

An equity share is acquired on 1st of January, 2017 at ? 1000, its fair market value is ? 2500 on 31st of January, 2018 and it is sold on 1st of April, 2018 at ? 500.

Accordingly, the cost of acquisition would be higher of:

actual cost of acquisition: ? 1000/- and
Lower of :
Fair market value: ? 2500/-
Sale consideration: ? 500
Which comes to ? 1000

Hence, the long-term capital loss will be ? 500 (Rs. 500 – ? 1000) in this case.

The government has given following benefits while calculating the Capital Gain

Capital Gains upto ? 1,00,000/- are exempt
also by considering the fair market value as on 31st March 2018 while computing the cost of acquisition the government has exempted the cap gain accrued till 31st March 2018
The Author can be reached at mayank.pandey@samp.co.in,

 

By: Mayank Pandey - February 16, 2018

 

Discussions to this article

 

Since exemption under Sec 10(38) is removed can one draw a conclusion that Capital Gain exemption less than Rs. 1 Lakh referred to in Sec 112A is withdrawn? If not, what is the basis of the conclusion that LTCG referred to in Sec 112A up to of Rs. 1 Lakh is exempt?

By: Harsha Vardhan
Dated: 16/02/2018
Dear Harsh, in the previous tax the need for section 10(38) was there because whole of the cap gain was taxable (e.g. even if the cap gain was ? 10000/-).

Since in the proposed Section 112A cap gain is taxable only when the amount exceeds ? 1,00,000/- hence there is no need for exemption for amount below the threshold amount.

By: Mayank Pandey
Dated: 16/02/2018
Sir

Thank you for your reply. Sec 112A talks about rate of tax. Can exemption be claimed using the words mentioned in the section 112A without any reference to sec 10?

By: Harsha Vardhan
Dated: 16/02/2018
Dear Harsh as per the proposed bill, section 10(38) would be withdrawn. Please read clause (i) of Sub-section 2 of section 112A. which says:

"(2) The tax payable by the assessee on the total income referred to in sub-section (1) shall be the
aggregate of-
(i) the amount of income-tax calculated on such long-term capital gains exceeding one lakh
rupees at the rate of ten per cent.; and
(ii) the amount of income-tax payable on the balance amount of the total income as if such
balance amount were the total income of the assesse:

So to answer your query, there is no need of claiming any exemption as cap gain below ? 1,00,000/- is not taxable at first (in other words cap gain < 1,00,000/- is already exempt).

Hope this satisfies you query.

Home | About Us | Terms and Conditions | Contact Us
Copyright 2024 CAinINDIA All Right Reserved.
Designed and Developed by Ritz Consulting