LTCG Tax: All You Need to Know

In his 2018 budget speech, finance minister Arun Jaitley reintroduced the Long Term Capital Gains Tax (LTCG) for equity-based mutual funds and stocks for gains excessing Rs. 1 lakh. Although it’s not something new, it made headlines for quite some time, but why?

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Why is LTCG Tax important now?

As per the center’s decision, investors earning more than 1 lakh from the sale of stocks or equity-based mutual funds have to pay a 10% LTCG tax on the same.  Earlier this tax was applicable only to profits earned on the sale of assets such as shares or real estate. Although it used to be levied on gains from stocks too, it was scrapped in 2004-05 by then finance minister P Chidambaram.

What’s grandfathering in LTCG Tax?

Whenever the government introduces new policies on taxes, it has to keep the interest of the investors and stakeholders in mind. So, to protect the individuals who have invested in stocks, the government has offered a “grandfathering” clause for the LTCG tax.

Under this, gains from equity mutual funds and shares made till January 31, 2018, will be exempted i.e. “grandfathered”. So, the investors won’t have to pay the tax on their gains if they fulfill the condition.

Who has to pay LTCG Tax?

As per the budget, the LTCG tax has to be paid for profits earned after March 31 onwards. In other words, investors don’t have to pay the tax on the sale of shares made till March end. So, if they don’t want to pay the tax, they can sell their shares now.

It’s also worth noting that the LTCG tax is applicable only on the gains exceeding Rs. 1 lakh in a fiscal year. So, if profits amounting to Rs. 1.75 lakhs are earned in a financial year, then the tax is applicable on only Rs. 75,000.