Long Term Capital Gain on Shares

 

Shares (equity or preference) which are listed in a recognised stock exchange in India, units of equity oriented mutual funds, listed securities like debentures and Government securities, Units of UTI and Zero Coupon Bonds shall be considered as Long term Capital Asset if the period of holding is more than 12 months. Unlisted shares shall be considered as Long term Capital Asset if the period of holding is more than 24 months.

Long-term capital gains arising from sale of listed securities:

The Finance Act, 2018 had insertedsection 112Aw.e.f. AY 2019-20. As per the new section capital gains arising from transfer of a long term capital asset being an equity share in a company or a unit of an equity oriented fund or a unit of a business trust shall be exempt up to Rs. 1,00,000/- and the amount exceeding Rs. 1,00,000/- will be taxed @ of 10%. 
This concessional rate of 10% will be applicable if:
  • in a case of an equity share in a company, STT has been paid on both acquisition and transfer of such capital asset; and
  • in a case of an unit of an equity oriented fund or a unit of a business trust, STT has been paid on transfer of such capital asset.
The cost of acquisitions of a listed equity share acquired by the taxpayer before February 1, 2018, shall be deemed to be the higher of the following:
  • The actual cost of acquisition of such asset; or
  • Lower of the following:
  1.  FMV of such shares as on January 31, 2018; or
  2. Actual sales consideration accruing on its transfer.
The FMV of listed equity share shall be its highest price quoted on the stock exchange as on Jan 31, 2018. However, if there is no trading in such shares on Jan 31, 2018, the highest price of such share on a date immediately preceding Jan 31, 2018 on which trading happened in that share shall be deemed as its FMV.

In case of units which are not listed on recognized stock exchange, the NAV of such units as on Jan 31, 2018 shall be deemed to be its FMV. In a case where the capital asset is an equity share in a company which is not listed on a recognised stock exchange as on 31-1-2018 but listed on the date of transfer, the cost of unlisted shares as increased by cost inflation index for the F.Y. 2017-18 shall be deemed to be its FMV.
Long-term capital gains arising from transfer of specified asset:

A taxpayer who has earned long-term capital gains from transfer of any listed security or any unit of UTI or mutual fund (whether listed or not), not being covered under Section 112A, and Zero coupon bonds shall compute tax by applying the following methods and pay lower of a or b.
  1. Avail the benefit of indexation; the capital gains so computed will be charged to tax at normal rate of 20% (plus surcharge and cess as applicable).
  2. Do not avail of the benefit of indexation; the capital gain so computed is charged to tax @ 10% (plus surcharge and cess as applicable).
Long-term capital gains arising from transfer of Unlisted shares: As per sec 50CA in case of sale of unlisted shares if shares are transferred at a price which is less than FMV, then sale consideration to be taken for the purpose of calculating the capital gains shall be the FMV and not the actual sale consideration. Indexation benefit is available for calculating cost of acquisition and the long term capital gain is taxable @ 20%.

Note: Only a resident individual/HUF can adjust the basic exemption limit against LTCG. Thus, a non-resident individual and non-resident HUF cannot adjust the basic exemption limit against LTCG.No deduction under sections 80C to 80U is allowed from long-term capital gains.

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