InvestorQ : Is the capital gains tax a real issue for worry as far as investors are concerned?
Niraj Mehta made post

Is the capital gains tax a real issue for worry as far as investors are concerned?

Mary Joseph answered.
2 years ago

The impact of the selling was more visible on mid cap stocks which had appreciated substantially in the few months running up to the actual budget. Even among the large caps that were quoting at robust valuations the selling was quite severe. Long term gains tax will start kicking in from April 01st 2018 and hence investors will be looking to book profits by March 31st. Additionally, the cost of acquisition in case the shares are not sold by March 31st will be the actual price of purchase meaning that investors will end up paying a steep LTCG tax. That probably explains the market crash on Friday. Also, the markets feared that the proposed tax on LTCG would have a huge impact on financial plans where investors had committed long term funds and investments.

Let us understand how exactly this will work. One of the major changes in the Union Budget 2018 was the introduction of tax on long term capital gains (LTCG) at the rate of 10% above the profit level of Rs.1 lakh per year. This was applicable for equity and equity funds. For example, if your long term capital gains for the year 2018-19 are Rs.145,000/- then you’re LTCG up to Rs.100,000 will be exempt. On the additional LTCG of Rs.45,000/- tax at 10% (Rs.4500) will have to be paid. Also this tax is without any benefit of indexation and to that extent it is a flat tax. That means your long term capital gains on equities, which will be tax-free till March 31st 2018, will be taxable after that.