It helps to take some time to analyse the LTCG tax and its impact on your investments. You might even find out that it’s much ado about nothing!

Should you be worried about the LTCG tax A short and clear explainerImage for representation.
Money Rupee Rani Wednesday, February 14, 2018 - 15:54

Perhaps the most discussed announcement from the 2018 Budget was the announcement of Long Term Capital Gains tax on equity investments. Prior to this announcement, these investments were tax free, and so, bringing them under the tax bracket caused a great deal of panic among investors; consequently, the stock market crashed.

A negative buzz around investing, especially one that involves tax can put new investors, especially women investors, off because you’re discouraged from investing even before you start. However, it helps to take some time to analyse the announcement and its impact on your investments and your style of investing. You might even find out that it’s much ado about nothing!

How does the new LTCG tax work?

If you own an equity instrument – shares in a company or an equity oriented Mutual Fund for example – for more than a year, your holding is considered to be a ‘long-term’ asset. If you bought this asset at Rs 100 and you’re now selling it at Rs 150, this gain of fifty rupees is considered to be a Long Term Capital Gain (LTCG).

Previously, you wouldn’t have had to pay any tax on this gain, but from the Financial Year 2018-2019, you will have to pay 10% tax on your gain – if and only if the gain is in excess of Rupees One Lakh. So, if your gain on sale was less than a lakh, then your sale is tax free. If the gain is more than a lakh, then you have to pay tax.

Another thing – the cost of your asset is grandfathered as on 31st January 2018. This means that for the purpose of calculating LTCG, you don’t take your original cost, but the value of your equity instrument as on January 31, 2018. Let’s say you bought some units in a Mutual Fund back in 2015 that you want to sell in June 2018. The value that you take as cost of your asset will not be the original price that you purchased it for, but its value as on January 31, 2018.

This grandfathering, which is applicable only on assets purchased on or before January 31, 2018 is to ensure that the gain and consequently the tax paid isn’t too high for individual investors.

Is there a way out from the tax?

If you sell your investments before April 1, 2018, then your capital gains will be exempt because the Long-Term Capital Gain provision kicks in only from April 1, 2018. So, if you’ve made excellent gains on your investments and you’re sure of exceeding the Rs 1 lakh limit, you can sell your holdings and start afresh before April begins. This way, you wouldn’t have to pay tax.

The other course of action you can take with your investments is to constantly monitor them and dispose them the moment your gain gets close to Rs 1 lakh, so that you can take the benefit of the exemption.

The third course of action that I would recommend is to stay invested in those instruments that you’re confident you’ll get good yields from. This way, the gain that you will make will be significant enough to make the tax seem minor, or if I am to be even more optimistic, the following government/budget might end up scrapping the tax altogether!

Rupee Rani is a weekly column on finance for women. Write to us with your queries at

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