How to calculate LTCG tax on equity shares and equity mutual fund units
LTCG up to Rs 1 lakh per person in a financial year will be exempt. Thus, if your net LTCG (after setting of any eligible losses) from selling of equity shares and equity mutual funds in FY 2018-19 is Rs 1.2 lakh, then you will be required to pay tax only on Rs 20,000.
As a relief to investors, if you were already holding your investments in equity shares and equity mutual funds on January 31, 2018, you will not be required to pay tax on the entire capital gains. Capital gains accrued till January 31, 2018 will be 'grandfathered' and the amount of gains on which you are liable to pay tax will be calculated based on a formula.
As per the formula, the Cost of Acquisition for the shares and equity mutual funds bought before February 1, 2018 will be taken (for the purpose of calculating long-term capital gains/loss) as the higher of:
a) Actual cost of acquisition of such asset, and
b) Lower of
(i) Fair Market value of such asset
(ii) Full value of consideration received or accruing as a result of transfer.
Here is a look at what each of these components mean.
Actual cost of acquisition of such asset
This means that the actual money paid by you to buy the equity share or equity mutual fund units for which the calculation is being done.
Fair Market Value (FMV)
According to the rules, FMV is taken as the 'highest price' of that asset on any recognised stock exchange on January 31, 2018. This means that if an equity share of company XYZ Ltd, listed on Bombay Stock Exchange (BSE), opened for trading at Rs 100, its closing price was Rs 99, and during the day it touched a high of Rs 102, then the FMV will be taken as Rs 102.
The rules further state that, if an equity share was not traded on the stock exchange on January 31, 2018, then FMV in such a case will be taken as the highest traded price on the day immediately preceding January 31, 2018, on which trade has taken place.
For equity mutual funds, FMV will be taken as the net asset value (NAV) as on January 31, 2018.
Full value of consideration received or accruing as a result of transfer
Here you will take the amount received by you from selling equity shares and/or equity mutual funds.
Suppose you have bought 1,000 shares of XYZ Ltd (listed on stock exchange) in January 2014 at Rs 150 per share. Assume you sold those shares in June 2018 for Rs 220 per share. The FMV of shares as on January 31, 2018 was Rs 200.
Since you sold those shares after holding them for more than one year, capital gains accrued on such shares will qualify as LTCG. In order to arrive at the cost of acquisition of such an asset, first we have to determine lower of the:
After determining the lower value between FMV and sale proceeds, you have to determine the higher value of the following:
This higher value of Rs 2 lakh will be taken as your cost of acquisition in order to ascertain the long-term capital gains chargeable to tax. LTCG will be calculated as:
LTCG on which you are required to pay tax in the above example is Rs 20,000. However, since in this case the amount is less than Rs 1 lakh, it will be exempt from tax. Do keep in mind that if the total LTCG on all transactions in equity and equity mutual funds in a financial year crosses Rs 1 lakh, then the excess will be taxable.
As per the law proposed in Budget 2018, LTCG arising from sale of equity shares and/or equity mutual funds on or before March 31, 2018 (in FY2017-18) will remain exempt from tax.
This is how our LTCG tax calculator works.