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Tax on Long Term Capital Gain (LTCG) on Equity Shares & Mutual Funds
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(Section 112A of The Income Tax Act - applicable from AY 2019-20)


When shares & equity mutual funds are sold/redeemed after 12 months of their holding, the gain on such sale/redemption is known as Long Term Capital Gain. Earlier to assessment year 2019-20 this long term capital gain was exempt from tax but from 1st April 2019 such long term gains are being brought into income tax net.

The provisions relating to tax on Long Term Capital Gain on Equity Shares, Equity Oriented Mutual Funds and unit of a Business Trust are inserted by Finance Act 2018 and covered by Section 112A of The Income Tax Act.

Accordingly Long Term Capital Gain on equity shares & equity oriented mutual funds & units of a business trust, if exceeding Rs. 1.00 lac; is chargeable to tax at a flat rate of 10%.

Detailed provisions of the Section 112A relating to tax on long term capital gain on sale/redemption of equity shares/mutual funds:
  • Provisions of Section 112A are applicable from Assessment Year 2019-20 (Previous Year 2018-19)
  • Section 112A is applicable when there is Long Term Capital Gain  on sale/redemption of Equity Shares & Equity Oriented Mutual Funds & units of a business trust. Here clear emphasis is on Equity Shares & Equity Oriented Mutual Funds. Other Mutual funds like debt funds, Gilt funds, FMPs etc. are not covered by this section.
  • The transaction shall be chargeable to Securities Transaction Tax(STT). One can check the details of STT from the mutual fund transaction/redemption document.
  • Total Long term gain from sale/redemption of Equity Shares & Equity Oriented Mutual Funds is more than one lakh rupees( Rs. 1.00 lac).
  • If the above conditions are satisfied, Long term capital gain will be taxable at a flat rate of 10%.

How to Calculate Capital Gain on sale/redemption of Shares &/or Mutual Funds-

Calculation of Capital Gain in case of sale of shares/mutual funds is a bit different as cost of acqusition of such shares/mutual funds is calculated as per the newly inserted provisions of Section 55 of The Income Tax Act.

Cost of Acquisition-
Accordingly cost of Acqusition in cases when shares/mutual funds are acquired before 1st February 2018 shall be - Higher of following two -
  • Actual cost of acqusition of such shares/mutual funds and
  • lower of -
    • Fair market value of such shares/mutual funds on 31st January 2018 and
    • Full value of consideration of such shares/mutual funds received/accruing on sale/redemption/transfer.
Capital Gain-
After computing the cost of acquisition as above capital gain shall be calculated as follows-

Full Value of consideration on sale/redemption/transfer
XXXXX
Less Cost of Acquisition as computed above Under Section 55 of IT Act
XXXXX
Long Term Capital Gain on Equity Shares/Mutual Funds/Units of Business Trust
XXXXX



How to Calculate income tax when total income includes Long Term Capital Gain on Shares &/or Mutual Funds?

The total income of a person is taxable as per the applicable slab rate but LTCG on equity shares & equity oriented mutual funds will be taxable at a flat rate of 10%.

The methodology to calculate tax when total income of a person includes LTCG on shares & mutual funds is explained below:
  • Calculate tax on Long Term Capital Gain on Equity Shares & Equity Oriented Mutual Funds @ 10%.
  • Now calculate tax on balance income as per normal tax slab rate applicable as if it is the total income.
  • Add both the taxes calculated as above, & this is your total tax liability.

  • Benefit of Chapter VI A deductions(ie. Section 80C deductions relating to investments in PPF, LIC, PF etc.) is not available from LTCG on Equity Shares & Equity Oriented Mutual Funds. Means if your only income is Long term capital gain from shares, you will not be eligible for any deduction under Section 80C for tax savings investments. 
  • In cases where total income(excluding LTCG) is less than the exemption limit, LTCG will be reduced by the amount by which total income falls short of exemption limit.
  • Though the benefit of setting off LTCG to the exemption limit is given, but the LTCG remaining after exausting the exemption limit will be taxable @ 10% & not at the applicable tax slab rate.
  • Indexation benefit is not applicable for calculating LTCG on sale/redemption of Equity Shares, Equity oriented Mutual Funds and units of a business trust.

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Quick Links;
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