What’s the impact of LTCG Tax on Equity Mutual Funds?
, ET Bureau|
Updated: Feb 08, 2018, 08.12 AM IST
The Budget 2018 has changed how long-term capital gains tax on equity mutual funds will be levied from April 1, 2018. Here's how the new tax regime will apply to individuals:
1. What is the budget proposal of LTCG (long-term capital gains) tax on equity mutual funds?
Till now, investors, who invested in equity mutual funds and sold them after holding them for more than a year, paid zero LTCG tax. In this year's budget, the government has proposed a 10 per cent LTCG tax on gains made above Rs 1 lakh per annum.
2. The budget talks about grandfathering in LTCG. What does that mean?
The grandfathering clause is the exemption granted to existing investors for gains made by them before the new tax law came into force. The government has done this to ensure that investors who have committed money keeping in mind the easier tax regime are protected. As per the new laws, the government has said that gains made in equity-oriented mutual fund schemes till January 31, will be grandfathered or exempted. There will be no LTCG tax on notional profits on mutual funds till then.
3. Who will come under the new LTCG tax net? When is the tax payable?
Since this is a direct tax proposal, it will normally be applicable for the assessment year 2019-20 (Financial Year 2018-19). In other words, the LTCG of over Rs 1 Lakh made during the year 2018-19 will be liable to tax at 10 per cent.
4. What happens to my tax liability if I sell equity-oriented mutual funds starting today held for more than a year?
For long-term capital gains made in the current financial year (2017-18), i.e. sale of funds upto March 31, 2018, there is not tax. However, any sale made after April 1, 2018 will be liable to the new LTCG tax. One needs to segregate this LT capital gain into two parts:
a) Part I - is LTCG made upto Jan 31, 2018. This will be the NAV of the mutual fund on Jan 31, 2018, minus the cost of acquiring the units;
b) Part II - is LTCG made after Jan 31, 2018. This will be sale price NAV minus NAV of the scheme as on January 31, 2018.
As per the tax law, Part I will be exempt. It is the Part II, which will be assessed as LTCG for Tax.
1. What is the budget proposal of LTCG (long-term capital gains) tax on equity mutual funds?
Till now, investors, who invested in equity mutual funds and sold them after holding them for more than a year, paid zero LTCG tax. In this year's budget, the government has proposed a 10 per cent LTCG tax on gains made above Rs 1 lakh per annum.
2. The budget talks about grandfathering in LTCG. What does that mean?
The grandfathering clause is the exemption granted to existing investors for gains made by them before the new tax law came into force. The government has done this to ensure that investors who have committed money keeping in mind the easier tax regime are protected. As per the new laws, the government has said that gains made in equity-oriented mutual fund schemes till January 31, will be grandfathered or exempted. There will be no LTCG tax on notional profits on mutual funds till then.
3. Who will come under the new LTCG tax net? When is the tax payable?
Since this is a direct tax proposal, it will normally be applicable for the assessment year 2019-20 (Financial Year 2018-19). In other words, the LTCG of over Rs 1 Lakh made during the year 2018-19 will be liable to tax at 10 per cent.
4. What happens to my tax liability if I sell equity-oriented mutual funds starting today held for more than a year?
For long-term capital gains made in the current financial year (2017-18), i.e. sale of funds upto March 31, 2018, there is not tax. However, any sale made after April 1, 2018 will be liable to the new LTCG tax. One needs to segregate this LT capital gain into two parts:
a) Part I - is LTCG made upto Jan 31, 2018. This will be the NAV of the mutual fund on Jan 31, 2018, minus the cost of acquiring the units;
b) Part II - is LTCG made after Jan 31, 2018. This will be sale price NAV minus NAV of the scheme as on January 31, 2018.
As per the tax law, Part I will be exempt. It is the Part II, which will be assessed as LTCG for Tax.
