InvestorQ : Can you explain how an equity fund will be impacted by the LTCG tax announcement?
Abhi Yadav made post

Can you explain how an equity fund will be impacted by the LTCG tax announcement?

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Abhisha Yadav answered.
2 years ago
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In this table, we look at how the LTCG impacts the gains of an investor in an equity fund before and after the LTCG Tax.

Pre-LTCG Tax

Amount

Post-LTCG Tax

Amount

Date of Investment

Jan 01st 2012

Date of Investment

Jan 01st 2012

Investment Cost

Rs.6,00,000

Investment Cost

Rs.6,00,000

Date of sale

Feb 05, 2018

Date of sale

Apr 05, 2018

Sale Value

Rs.15,00,000

Sale Value

Rs.15,00,000

Capital Gain

Rs.9,00,000

Capital Gain

Rs.9,00,000

Tax on Capital Gain

-Nil-

Exempt Capital Gain

Rs.1,00,000

Post Tax LTCG

Rs.9,00,000

Taxable Capital Gain

Rs.8,00,000

Tax on LTCG (10%)

Rs.80,000

Post Tax LTCG

Rs.8,20,000

As we can see from the above table the tax on LTCG is significantly reducing the post tax capital gains on equities and equity funds. This has larger implications for your financial plan. That is because, when you realize your capital gains at the time of your milestones, you will be paying nearly 10% as LTCG tax. That is something you need to seriously factor in. But the bigger question is does this tax change the attractiveness of equity funds vis-à-vis debt funds. It needs to be said that this does reduce the attractiveness of equity funds vis a vis debt funds as now debt funds will have indexation on long term gains but equity funds will not have.

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