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

Franklin India High Growth Companies Fund

Franklin India High Growth Companies Fund Online One of the key developments that the Street is keenly waiting for is a cut in interest rates by Reserve Bank of India . With demand rising gradually, a rate cut is expected to boost earnings growth for companies. In such a situation, schemes which invest in high growth companies are best suited, especially when seen from a long-term perspective. One such scheme is Franklin India High Growth Companies Fund. Fund managers Anand Radhakrishnan, Roshi Jain and Srikesh Nair strictly follow valuation parameters when it comes to choosing stocks.Valuation parameters, such as enterprise value, price-to-earnings growth ratio, forward price-to-sales ratio and discounted earnings per share, play a critical role in selecting companies for investments. Taking into account these parameters, the fund managers invest in companies which are poised for high growth in their respective sectors. This approach has been in favour of the scheme and it has perform...
Read more

Atal Pension Yojana contribution Tax Benefit for spouse

Contributions to Atal Pension Yojana (APY) are eligible for the same tax benefits as the NPS. This means that the contributions can be claimed under Section 80CCD (1B). The current limit for Section 80CCD (1B) is   Rs   50,000, over and above the   Rs   1.5 lakh limit under Section 80C. Section 80 CCD (1) is a different one, meant to cover employers' contribution towards NPS . You cannot get tax benefit by investing in the name of your spouse under Section 80 CCD . ------------------------------ ----------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds Top 10 Tax Saver Mutual Funds to invest in India for 2016 Best 10 ELSS Mutual Funds in India for 2016 1. BNP Paribas Long Term Equity Fund 2. Axis Tax Saver Fund 3. Religare Tax Plan 4. DSP BlackRock Tax Saver Fund 5. Franklin India TaxShield 6. ICICI Prudential Long Term Equity Fund 7. IDFC Tax Advantage (ELSS) Fund 8. Birla Sun Life Tax Relief 96 9. ...
Read more

Mutual Fund Exit Load Changes

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300 Mutual Fund Exit Load Changes AMCs don't communicate about any change in exit load directly with investors, but do update on their website   The exit load applicable to your investments is the load which existed at the time when you invested in the particular fund. Any subsequent changes in the exit load will not be applicable to your investments.   However, Asset Management Companies ( AMCs ) periodically publish addendums in the newspapers, which state any change in exit loads of specific schemes managed by them. Such changes are also posted on their websites. However, a direct communication to an investor is not made, considering the costs involved in doing so. In their own interests, investors should not only track the performance of the funds they i...
Read more

Debt Mutual Fund Dividends are Taxable

DDT is deducted when a non-equity fund declares dividends. Equity and balanced fund dividends are tax-free The AMC is correct to deduct the dividend distribution tax (DDT) as it is mandated by tax laws. DDT in mutual funds is deducted every time a non-equity fund declares dividends. Equity fund and balanced fund dividends are tax-free . It is possible that you have invested in a non-equity fund for the first time or have received the dividend under a non-equity fund for the first time. That is why this is the first occasion when you have come across DDT.   The rate at which non-equity schemes deduct DDT has also gone up after the July 2014 budget. This is due to a change in calculation methodology. Earlier, if the fund has to declare a dividend of R 100, it used to make a provision for R 128.3, paying R 28.3 to the taxman and distributing the balance to the investor. This allowed the investor to bear less tax since the effective tax rate was 22.07 per ce...
Read more

Avoid NFOs

  Don't get taken in by the flurry of new fund offers. You will be better off sticking to the tried and tested schemes.   For the past one year, to cash in on the bull run in equities, mutual fund houses have gone on a new fund offer (NFO) overdrive. But experts are unanimous in their advice: avoid NFOs . While past performance is not an indicator of how a fund will fare in the future, it does tell the investor how skilful the fund manager is. This crucial information is missing in an NFO. Not only is there no track record to judge an NFO by, many NFOs are similar to funds that already exist. If the new fund is similar to existing funds, you are better off investing in the latter. Around 67% of the new launches in 2014 were closed-end products. Investing in the NFO of a closed-end fund is doubly risky. In case the fund's performance is lacklustre, a closed-end fund does not allow you to exit. Even though closed-end funds are listed on the stock...
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