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LTCG: Gains and losses since Modi govt’s first budget of 2014

From April 1, 2018, LTCGs in excess of 1 lakh arising on sale of listed equity shares, equity-oriented mutual funds held for more than 12 months are taxable at 10% (without indexation benefit).

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Updated: Jul 06, 2019, 10.25 AM IST
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(This story originally appeared in on Jul 04, 2019)
Long-term capital gains (LTCG): Capital gain on sale of all listed securities in India mentioned above (other than debt-oriented MFs), held for more than 12 months are treated as LTCG. Unlisted shares and immovable property have to be held for more than 24 months to qualify for LTCG. In all other types of capital assets, including debt oriented MFs, sale after 36 months will qualify as LTCG.

Short-term capital gains (STCG): When securities (listed other than a unit/equity oriented MF/zero coupon bonds) are held for up to a year, the gain is treated as STCG. For all other type of capital assets, holding up to 24/36 months will qualify as STCG.

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*Exemption available if Securities Transaction Tax paid on sale and STT also paid on purchase, in case of equity shares acquired on or after 1 Oct 2004 (subject to certain exceptions notified).
** If STT of 0.1% each is paid by seller and buyer in both cases *** If STT of 0.001% is paid by seller # STT rates mentioned above are for delivery-based transactions only.


Set-off provisions for capital losses are rather restrictive
  • Loss from transfer of a long-term capital asset can be set off against gain from transfer of any other long-term capital asset in the same year. But, long-term capital loss cannot be set off against short-term capital gains
  • Loss from transfer of a short-term capital asset can be set off against gain from transfer of any other capital asset in the same year
  • Any unutilised capital loss after absorption in the same year can be further carried forward to next eight years and be utilised under the same conditions as above
  • You should file your I-T return before July 31 to carry forward any losses

Now here is a look at how the Modi government has treated LTCG since 2014.

2014: Increase in taxation of debt funds and unlisted shares
  • The option of a 10% concessional tax rate (without indexation), for LTCG on sale of debt mutual fund units was abolished from July 10, 2014. Such gains are now taxable @20% (plus surcharge and cess), but indexation benefit is available.
  • Holding period for debt funds and unlisted shares increased to 36 months from 12 months for LTCG purposes.

2016: Relief for non-residents and holders of unlisted shares
  • 10% concessional tax rate extended to LTCG on transfer of shares of private companies by non-resident taxpayers.
  • Holding period for unlisted shares lowered to 24 months from 36 months for LTCG purposes.

2017: Relief on sale of house property and change in base year for indexation
  • Holding period for immovable property lowered to 24 months from 36 months for LTCG purposes.
  • The base year for computing indexation shifted to April 1, 2001 from April 1, 1981.

2018: Increase in taxation of listed securities and grandfathering provisions
  • Capital gains on sale of listed equity shares once enjoyed full tax exemption. However, from April 1, 2018, LTCGs in excess of 1 lakh arising on sale of listed equity shares, units of equity-oriented mutual funds or units of listed business trusts (listed securities) held for more than 12 months are taxable at the rate of 10% (without indexation benefit).
  • In case such listed securities were acquired prior to Feb 1, 2018, grandfathering provisions are applicable. It means that only gains after that will be taxed. For instance, if you invested Rs 2 lakh in stocks or equity funds in March 2016, and on Jan 31, 2018, the value of the investment was Rs 3 lakh. You sell the investment for Rs 4 lakh after March 31, 2018. LTCG will be calculated using the Jan 31, 2018 price. So the gain will be Rs 1 lakh.
  • A rate of 10% and grandfathering apply only where STT was paid at the time of purchase and sale. However, there are exceptions to the rule if listed shares are allotted under ESOP or stocks that were listed at a later date. The cost step-up is calculated by applying a specific indexation benefit for 2017-18 as in Case study 2.

Computing LTCGs arising from share sale has now become slightly complicated
Three typical scenarios arise:
1) Listed shares acquired before February 1, 2018 (Case study 1)
2) Unlisted shares acquired before February 1, 2018 and sold after listing (Case study 2)
3) Shares acquired after February 1, 2018: Here, if the shares are sold after a holding period of 12 months, the gains will be long-term in nature. Long-term capital gains exceeding Rs 1 lakh will be taxed at 10% (without indexation) with no grandfathering benefit.
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*Between (b) and (c) take the number that’s lower. Compare it to (a);
Whichever is higher, is the Deemed Cost of Acquisition
Figures in Rs

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