New Delhi: The proposed long-term capital gains tax on equity holdings will apply to profits made from the sale of shares on or after 1 April 2018, the government said today.
While the tax will kick in on shares sold on or after 1 April, the acquisition cost for the purpose of computing the capital gains will be the higher of the actual purchase price or the maximum traded price on 31 January, it said.
Finance Minister Arun Jaitley in his Budget for 2018-19 announced levying long-term capital gains tax on profits made from share sales.
“The new tax regime will be applicable to transfer made on or after 1 April 2018 (and) the transfer made between 1 February 2018, and 31 March 2018, will be eligible for exemption under clause (38) of section 10 of the Act,” the FAQ said.
At present, India imposes a 15% tax on short-term capital gains made from the sale of shares within a year of purchase. However, gains made after a year of purchase is exempt from the levy.
The levy would apply to equity shares of a listed company, unit of an equity oriented fund and unit of a business trust. These assets must have been held for a minimum period of 12 months from the date of acquisition.
In the case of an unlisted unit, the net asset value of such unit on 31 January 2018, will be the fair market value.
Long-term capital gains exceeding Rs 1 lakh from sales of shares made on after 1 April 2018, will be taxed at 10%. However, there will be no tax on gains accrued up to 31 January 2018, it added.
Prior to the Budget announcement, long-term capital gains arising from the transfer of long-term capital assets, being equity shares of a company or a unit of equity oriented fund or a unit of a business trust, was exempt from income-tax under clause (38) of section 10 of the Act.
However, transactions in such long-term capital assets were liable to securities transaction tax (STT).
“This regime is inherently biased against manufacturing and has encouraged diversion of investment to financial assets.
“It has also led to significant erosion in the tax base resulting in revenue loss. The problem has been further compounded by the abusive use of tax arbitrage opportunities created by these exemptions,” the FAQs stated.
The exemption has now been withdrawn to minimise economic distortions and curb erosion of tax base, it added.
The FAQ, however, said that the long-term capital loss arising on account of share sale between 1 February 2018, and 31 March 2018 will not be allowed to be set off or carried forward.
“Long-term capital loss arising from a transfer made on or after 1 April 2018, will be allowed to be set-off and carried forward in accordance with existing provisions of the Act,” it added.