India Issues FAQ On Long-term Capital Gain Tax Under Finance Bill 2018

; posted on
February 8th, 2018

The Central Board of Direct Taxes(CBDT) in India released announcement, responding to the frequently asked questions regarding taxation of long-term capital gains proposed in the Budget 2018(Finance Bill 2018). The budget was presented by the Finance Minister Arun Jaitley on February 1, 2018, which proposed several significant changes in the country’s tax scheme.

The Long-term Capital Gain Tax proposal and it Purpose

Under the existing regime, long term capital gains arising from transfer of long term capital assets, being equity shares of a company or a unit of equity oriented fund or a unit of business trust, is exempt from income-tax, while transactions in such long-term capital assets are liable to securities transaction tax (STT). The proposal is to minimise economic distortions and curb erosion of tax base under such regime by withdrawing such exemption. Consequently, long-term capital gains arising from transfer of such long-term capital asset exceeding one lakh rupees will be taxed at a concessional rate of 10 percent.

Official Response to Queries by Taxpayers

The announcement first clarified the definition of long term capital gains, which will be taxed since April 1, 2018. The taxable amount should be computed by deducting the cost of acquisition from the full value of consideration on transfer of the long-term capital asset. The cost of acquisition for the long-term capital asset acquired on or before January 31, 2018 will be the actual cost, but the fair market value will be deemed to be the cost of acquisition if the actual cost is less than the fair market value of such asset as on January 31, 2018. As the fair market value on January 31, 2018 will be taken as cost of acquisition (except in some typical situations), the gains accrued until January 31, 2018 will continue to be exempt. Several examples on calculating the tax amount under various scenarios are provided, as well as other transitional rules.

Sources: CBDT

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