TMI BlogLong Term Capital Gain under Finance Bill 2018X X X X Extracts X X X X X X X X Extracts X X X X ..... Long Term Capital Gain under Finance Bill 2018 - By: - Mayank Pandey - Income Tax - Dated:- 16-2-2018 - - 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 Fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce 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 1 st April 2018. The proposed taxation shall apply to transfer made on or after 1 st 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 ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 5 th 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 1 st of January, 2017 at ₹ 1000, its fair market value as on 31 st January 2018 is ₹ 2500. The Assessee sold it on 1 st of April, 2018 at ₹ 3000 As the actual cost of acquisition is less than the fair market value as on 31 st of January, 2018, accordingly, the cost of acquisition would be higher of: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 1 st of January, 2017 at ₹ 1000, its fair market value is ₹ 2500 on 31 st of January, 2018 and it is sold on 1 st of April, 2018 at ₹ 1500. In this case, the actual cost of acquisition is less than the fair market value as on 31 st of January, 2018. However, the sale value is also less than the fair market value as on 31 st of January, 2018. Accordingly, the cost of acquisition would be higher of: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 1 st of January, 2017 at ₹ 1000, its fair market value is ₹ 500 on 31st of January, 2018 and it is sold on 1 st 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 gai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n will be ₹ 500 (Rs. 1500 ₹ 1000). Illustration 4: An equity share is acquired on 1 st of January, 2017 at ₹ 1000, its fair market value is ₹ 2500 on 31st of January, 2018 and it is sold on 1 st 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considering the fair market value as on 31 st March 2018 while computing the cost of acquisition the government has exempted the cap gain accrued till 31 st March 2018 The Author can be reached at mayank.pandey@samp.co.in , - Reply By Harsha Vardhan as = Since exemption under Sec 10(38) is removed can one draw a conclusion that Capital Gain exemption less than ₹ 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 ₹ 1 Lakh is exempt? Dated: 16-2-2018 Reply By Mayank Pandey as = 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 ₹ 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0000/-). 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. Dated: 16-2-2018 Reply By Harsha Vardhan as = 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 ? Dated: 16-2-2018 Reply By Mayank Pandey as = 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Dated: 16-2-2018 - Scholarly articles for knowledge sharing authors experts professionals Tax Management India - taxmanagementindia - taxmanagement - taxmanagementindia.com - TMI - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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