Skip to main content

LTCG Impact on your Investments

Best SIP Funds to Invest Online 



Long term capital gains (LTCG) tax has made a re-entry in Budget 2018-19. The Finance Minister has proposed to levy a 10 per cent tax on the capital gains earned above Rs 1 lakh. The cost price reset date is set to 31st January, 2018, and the exemption period is till 31st March 2018. Long-term period defined for equity investments is above one year. During the one year period it is regarded as short term capital gains and the tax rate is 15 per cent.




This move by the government may not be very encouraging for investors but it does not spell doom yet. We try to give a clear idea here, on the implications of the newly introduced clause of LTCG tax on your earnings. In other words, we equip you with relevant information so that you can zero in on the perfect investment strategy that best suits you.

Important points:

  • The LTCG tax is 10 per cent with no indexation benefit for equity investments.
  • LTCG exempt is up to Rs 1,00,000: This is a universal annual limit that includes LTCG earned from all the equity investments put together. For example, if you earned a total LTCG of Rs 1,50,000 by selling various investments throughout the year, the taxable LTCG is only Rs 50,000. The tax liability is Rs 5,000 (10 per cent of 50,000).
  • Exemption till 31st March 2018: This means that if you book LTCG before March this year, you are not liable to pay any tax even if the gains exceed Rs 1,00,000.
  • Cost reset date is 31st January 2018: If LTCG is booked in the next financial year (starting 1st April 2018) the cost price of the investment will be adjusted to the price as on 31st January 2018 for the tax liability calculation. However, if the investor has earned a loss with respect to the original purchase price, there is no LTCG tax to be paid.


Let's see how this plays out in different scenarios for investments made before 31st January, 2018:

Scenario 1
Purchase price on 1st January, 2013: Rs 100
Price on 31st January, 2018 (reset date): Rs 300
Selling Price on 1st March, 2018: Rs 350
As the long term investment is sold before 31st March, 2018, there is no tax liability.

Scenario 2
Purchase price on 1st January, 2013: Rs 100
Price on 31st January, 2018 (reset date): Rs 300
Selling Price on 1st June, 2018: Rs 350
As the long term investment is sold after 31st March, 2018, there is a tax liability to be paid. The deemed cost price for the tax calculation will be Rs 300. Thus, LTCG will be Rs 50 (350-300).

Scenario 3
Purchase price on 1st January, 2013: Rs 100
Price on 31st January, 2018 (reset date): Rs 50
Selling Price on 1st June, 2018: Rs 110
In this scenario, the cost price on the reset date is below the original purchase price. Hence, the tax liability will be computed on the original price ignoring the price on the reset date. Thus, investor is deemed to have earned LTCG of Rs 10 (110-100) and the tax liability is Rs 1 (10 per cent of 10).

Scenario 4
Purchase price on 1st January, 2013: Rs 100
Price on 31st January, 2018 (reset date): Rs 130
Selling Price on 1st June, 2018: Rs 110
Here the investment is sold below the deemed cost price of Rs 130. Investor will not have to pay any LTCG tax even if the selling price is above the original purchase price.


What should you do now?
Nothing. Stay put. Don't sell investments only because LTCG tax has been introduced. This would be simply foolish. Any move taken while in a state of panic can only lead to losses.

Paying taxes reduces the returns earned. But if the investments are held for a longer period of time, tax liability reduces considerably. The trick is to hold onto the investments longer to avoid booking  higher taxes on LTCG.

We demonstrate in the table below that the longer you hold on to an investment, the tax drag reduces and returns increases.

How will Long term capital gains tax impact your earnings?

As you can see, if the investment is sold after 10 years the post-tax return for the investor is 14.1 per cent as compared to 13.5 per cent after one year. Thus, the investor is better off by deferring the tax payment.



SIPs are Best Investments when Stock Market is high volatile. Invest in Best Mutual Fund SIPs and get good returns over a period of time. Know Top SIP Funds to Invest Save Tax Get Rich

For further information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

OR

You can write to us at

Invest [at] SaveTaxGetRich [dot] Com

Popular posts from this blog

How much to invest in gold ?

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India) Let your motivation dictate the share of the yellow metal in your portfolio Enough has been said and written about gold as an investment option. The latest argument is that the craze for gold among Indian households is endangering our country's balance of payments. The policymakers are busy trying to find ways of discouraging investment in gold, but if households keep the common good in mind, they would be paying the market price for gas cylinders as they do for, say, their mobile phone bills. After all, private decisions are driven by private motives. So, how should a household look at gold from its own perspective? Gold is primarily acquired for its merit as a store of value. Even if the worst crisis hits a family, the gold that it holds could be put to use anywhere in th...
Read more

Understanding Your Cibil Credit Information Report

   WE ARE all familiar with the anxiety and uncertainty that we feel when applying for a loan. After all, it's the lender who decides whether we can own our dream home, our first car, or whether our children can pursue higher education. In a nutshell, a better life depends on the lender's decisions.    While other factors do play a part in the lender's decision, the Cibil Credit Information Report ( CIR ) plays a crucial role in a lender's decision to approve a loan application.    Previously, lenders would treat all loan seekers equally. Each applicant, if approved by the lender's internal credit policy, would be charged at the same interest rate for a particular loan size and purpose. The lenders would charge a higher interest rate to all the borrowers, in order to compensate for the possible default of a small portion of the loan disbursed. In other words, it's like a professor (the lender) punishing an entire class (borrowers) for the mischief played b...
Read more

Compared to Bank FDs, Debt Mutual Funds are more Tax-Efficient

It is a security vis-a-vis returns battle between bank fixed deposits and debt funds In the past few months, banks have been consistently increasing their rates of interest on different fixed deposits. And after the Reserve Bank of India's Annual Monetary Policy, even the saving deposit rates are up at 4 per cent. For a six-month fixed deposit, you can easily get a rate of anywhere between 6 and 7 per cent annually. However, experts feel if one is looking to invest for less than a year, debt funds could make a better choice. The reason: Liquid funds and ultra short-term funds are giving annualised returns of 8 per cent. Financial advisors suggest retail investors opt for mutual fund schemes as they are more flexible and give higher post-tax returns. Opt for fixed deposits only if you are comfortable being locked-in for the tenure as a premature exit can attract a penalty. If your main aim is to ensure liquidity, debt funds are preferable. Though a fixed deposit gives you a...
Read more

Right Size your SIPs in terms of tenure and amount

Buy Gold Mutual Funds Invest Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Call 0 94 8300 8300 (India)    Systematic investment plans ( SIPs ) are here to stay. Going by the growing number of SIPs, it does look like investors have taken to them in a big way. Today as much as . 1,000 crore flow into SIPs every month. A SIP, as the name denotes, is a method to invest a fixed amount in a mutual fund at regular intervals --generally monthly or quarterly. It is easy to do and the minimum amount with most mutual funds is a mere . 1,000 per month. You can write post-dated cheques for your investment, or give an auto-debit facility from your bank account. In fact, most investors today prefer setting up an auto debit for their SIPs, since writing cheques is cumbersome. Also, you can choose any tenure that you want for your SIP — six months, one year, five years, 10 years or even opt for a perpetual SIP which will continue forever till you stop it....
Read more

Good Loan

Why Is It A Good Loan?: Loans against gold are cheaper and better than personal loans as the former are available at lower interest rates. In contrast, the interest rates on personal loans are not standardised and can vary from bank to bank. Also, a personal loan depends on a host of factors including, the borrower's salary, profession and the purpose for which the loan is being taken.      For instance, the interest rate on a personal loan of 5 lakh falls in a wide range of 15-30%. But loans against gold are available for as low as 11%. Secured borrowing such as a loan against gold, investments or property is cheaper because it is backed by some assets, which command a good value at any point of time. If the borrower defaults on the loan, the banks can liquidate the assets to settle the loan account.    Being a secured loan, the risk of default and credit losses is significantly lower in this loan compared to other forms of loan for personal use. Given the lower risk, gold loa...
Read more
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now