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Varun Marchand




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Published on: 13 Mar 2018 by varunmarchand

Everything you need to know about LTCG tax of 2018

On first February 2018, Finance Minister Arun Jaitley introduced LTCG taxes on equities and equity funds after 13 years. While many of you might be wondering what exactly are the terms and conditions of LTCG tax and how this new tax law might affect your long term investment plans, we at PIGGY have come up with answers to all the important questions that every mutual fund investor might have had since the day of the budget.

What exactly is LTCG tax?

According to LTCG tax of 2018, any long term capital gains from equity shares and equity mutual funds will be taxed at 10% of the acquired profits of the individual, if the capital gains are greater than 1 lakh.

I.,e starting from 1st February 2018 , if your funds, which are older than

1 year, are giving you profits of more than 1 lakh, then they are taxable at 10% of your acquired profits.

What exactly are the gains in this context?

Gains is the profit amount you made on your investment.

For example: you invested 10 lakh in 2017 and in 2018, the 10 lakh you invested grew to 12 lakh, so your gains on the investment is 2 lakh.

So your taxable amount will be 10% of 2 lakh, which is 20,000.

What if investment gain is 25%, does that mean I get only (25-10) 15% profits?

No, since your profits is 25%, 10%of 25 is 2.5%, therefore your profit gain is (25-2.5) 22.5%.

This is same for any percentage gain.

Do I have to pay tax for every profit of investment in mutual funds?

No, tax is only applicable if your profit is greater than 1 lakh.

How old should the mutual fund investment be for it to under come under long term capital gain?

Your investment should be older than 1 year to come under long term capital gain.

What if I sell my funds before they turn 1 year?

Then, you have to pay short term capital gain tax of 15% on your profits acquired.

Since LTCG tax is introduced, is the securities transaction tax (STT) removed?

No, you have to pay both STT as well as LTCG taxes.

So do I need to pay taxes to all the long term capital gains I have earned till now?

No, there is an exception provided to investors on all gains that they have made before the announcement of the tax.

So before of 31st January 2018 whatever profits you have gained through your long term capital investment does not come under the tax, the tax is collectable for the profits starting from 1st February 2018.

This exception called Grandfathering as mentioned by Arun Jaitley during 2018 budget announcement speech.

When exactly does the LTCG tax come into action?

It comes into action on 1st April 2018

What about the profits I acquired and sold between 1st February to 31st March?

Long-term capital gains sold between 1st February to 31st March are exempted from LTCG tax.

What about ELSS funds, should I have to pay taxes on them too?

Yes, tax is applicable to gains on ELSS funds too.

Will the NRI be subjected to this tax?

Yes, all NRI equity investments in India will be also subjected to tax with same terms and conditions.

With so many taxes in place, is it still profitable to invest in equity funds ?

Equity funds or mutual funds are still the least taxable and most profitable legal investments in India. In the long term , with the increase in taxes will encourage government to develop better infrastructure and regulations to ease the growth of businesses in rural and semi-rural areas.

While introduction of new tax into previously untaxed domain may seem a bit harsh on investors, we have to keep in mind that tax was primarily introduced to increase diversification in investors portfolio. And in the long run, the tax money will eventually used to develop financial infrastructure all over the country to develop many more businesses. Right now 10% tax on profits might seem like a huge blow to both young and old investors, this is just a minor glitch in a large ever growing economy like India, which is still at nascent stage while there is a lot of room to grow. Be positive.



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