LTCG tax from April 1, here’s how you can manage your equity investment gains

Until Budget 2018, any investment made in equity and gains arriving from the mechanism were exempt of Long Term Capital Gains (LTCG) under section 10(38), however finance minister Arun Jaitley on February 1, 2018, surprised investors by bringing the long-gone LTCG back, where you will have to pay 10% on your sale of equity shares or units of equity oriented fund or of a business trust. Investors have love for equities either by direct investing in companies listed on stock exchanges or opting for mutual fund schemes, or others. However, many individuals are still confused on how to operate their equity holdings once LTCG comes into effect, and to make things easier for them ClearTax - one of the largest e-filing platforms, has launched  LTCG Taxation Advisory Plan and  LTCG Filing Services services for investors, where all their questions in regards to the latter will be handled. 

A capital asset can either be short term or long term depending on its period of holding. Therefore, a Short-term capital asset (STCA) is one which has been held for a period of 36 months or less by a taxpayer while a Long Term Capital Asset (LTCA) is one which has been held by a taxpayer for a period of more than 36 months, barring few exceptions covered in the table below. However, some assets have a different period of holding. 

Here’s a list of capital assets and their holding, provided by ClearTax. 

FM in Budget 2018, proposed lifting of section 10(38) with a parallel introduction of Section 112A to tax LTCG on sale of equity shares or units of an equity oriented fund or of a business trust made after 1 April 2018, at a concessional rate of 10% on the gains in excess of Rs. 1 lakh without providing the benefits of indexation.

The proposal also mentioned that, investments prior to 31 January 2018 would be grandfathered which means any gains having accrued to an investment until 31 January 2018 which are sold after 1 April 2018 would be exempt from tax. 

Archit Gupta, Founder & CEO, ClearTax, said, “We want to help taxpayers understand and prepare for the change in law smoothly. By using this service taxpayers will have access to expert advisory on their long term holdings. They can take suitable decisions about their equity holdings based on the new tax regime.”

Here is how  taxpayers can make sense of the change in regime and manage their equity holdings to continue on the path of wealth creation, specifically those who have long term gains and plan to harvest some in the current financial year:

The LTCG Taxation Advisory Plan will help investors understand tax laws on long term capital gains. Investors and potential investors can seek expert advice and be assured of best course of action. 

Additionally, the LTCG Filing Services is made for those investors who have earned long term capital gains. The plan offers assistance at each step of the tax ladder, along with expert advisory for tax planning.

Capital gains under the income tax laws, refers to any profit or gain that arises from the sale of a ‘capital asset’ which has to be offered to tax in the year in which the assets get transferred and the capital gains arises.