Tax is a word which is never taken with positive sentiment by the masses. Be it a tax on personal income or tax on services on goods and services we buy or sell.
Similarly, 10% tax on long term capital gain was not welcome by the market. Post budget market plunged for two consecutive trading sessions. From the high of 11171.15, it has plunged to the low of 10276.30, and currently it is trading below the level of 10400.
When an individual invest in stock market say in equity or equity based mutual fund, before budget 2018, income from short term gains were taxed at a rate of 15%, however long term gains were tax free. Here long term defines any securities held for a period of more than a year.
As per the budget 2018, tabled on Feb, 10% long term capital gain was imposed on equity mutual fund investment and stocks/shares. In case of loss no tax.
Long term capital gain, on equity will levied with effect from April1, 2018. Thus anyone selling or redeeming his shares before April1, 2018, no capital gain will be taxed.1st April, 2018 is taken as base period, so any gain post the date shall be taken under consideration.
Mutual fund with more than 65% investment in equity is termed as equity based mutual fund. Thus any gain from the equity based mutual fund with a holding period of more than a year, will be taxed similarly, and with the exemption of 1 lakh in case of both equity based mutual fund and equity stock.
Say, an individual has a gain of Rs 2,00,000 after 2018, and has held the asset security for more than year a, so it will attract tax of 10%. The tax which the individual will have to pay is simply 10% of 100000 i.e., Rs10,000.
The most common way to calculate the long term gain is by reducing the cost of acquisition from the redemption value of mutual funds or stocks.
To know the cost of acquisition one must know the fair value of the security as on January 31, 2018.Fair market value is basically the highest price of hare or unit quoted on a recognized stock exchange on January 31, 2018.
As per the IT dept, he cost of acquisition for the long-term capital asset acquired on or before 31st of January, 2018 will be the actual cost. In case of actual value and fair value, the maximum value out of the two will be considered as the cost of acquisition.
So, if your long term gain on equity investment or equity based mutual fund investment is more than 1, 00,000 get ready to pay 10% tax on your gain.