Budget 2018: With the imposition of long term capital gains (LTCG) tax on equities, there is now very little difference between debt funds and equity funds. The Union Budget has introduced the much-talked about LTCG on sale of listed securities on gains of over Rs 1 lakh at the rate of 10% without allowing indexation benefit. Further, it has proposed a 10% tax on distributed income by equity oriented mutual funds. Currently, LTCG tax on debt funds is 20% with inflation indexation benefit, while equity holdings of more than one year did not attract LTCG tax. “Now with tax coming into equity, there will be more parity between equity funds and debt funds,” said a senior fund manager from the leading fund house. Finance minister Arun Jaitley in hisBudget speech said, “The return on investment in equity is already quite attractive even without tax exemption. There is therefore a strong case for bringing long term capital gains from listed equities in the tax net. However, recognising the fact that vibrant equity market is essential for economic growth, I propose only a modest change in the present regime.”
However, all gains up to January 31, 2018 will be grandfathered. For example, if an equity share is purchased six months before January 31, 2018 at Rs 100 and the highest price quoted on January 31, 2018 in respect of this share is Rs 120, there will be no tax on the gain of Rs 20 if this share is sold after one year from the date of purchase. However, any gain in excess of Rs 20 earned after January 31, 2018 will be taxed at 10% if this share is sold after July 31, 2018. “Rationalising the taxation, the Budget has levied tax on LTCG beyond Rs 1 lakh. This new tax has been grandfathered till January 31, 2018 which has been a very well-balanced approach,”said Rakesh Nangia, managing partner at Nangia & Co. Equity holdings for up to one year will continue to attract short term capital gain tax of 15%.
Income tax Calculator: Calculate impact of Arun Jaitley’s Budget 2018 on your tax liability
“Let’s stay long is the message coming out from the Budget. As investors, the most impactful Budget provision was re-introduction of LTCG at 10% on equities after a long break of 13 years. On first impression, it hurts sentiments as we are always happy with tax-free investment options. However, even today, for investors looking to grow their capital over long periods of time, equities remain the most efficient asset class,”said Kalpen Parekh, president, DSP BlackRock Mutual Fund.