LTCG Tax On Equity: Demystifying Investors’ Concerns

Since the announcement of LTCG tax on Equity, the markets have not quite settled, and so are the investors. There are so many questions now – “Do I have to pay a tax on my Investment now?” “I thought I’ll get tax free Returns?” “Should I sell my investment, so that I don’t have to pay any tax?”, and the like. The minds are blocked by perceptions because every newspaper and TV channel has a different story to narrate, which is also the primary factor behind the hype.

What’s the New Law?

Long Term Capital Gains (Investment period > 1 year) of above Rs 1 Lakh from Equity stocks and Equity Mutual Funds, will now be taxed at 10%, which was fully exempt earlier. However, the gains made until 31st Jan 2018 will be grandfathered, meaning the capital gains made on the investment until 31st Jan 2018 will be exempt.

Tax Calculation: Amongst the most asked questions by clients at this point, is the tax calculation part. How will the grandfathering work? How much tax will be due on existing equity investments? How about new investments?, etc.

We have the following illustration, which shows the LTCG tax impact on an investment made in an Equity Mutual Fund on different dates, this will help you in solving a lot of queries:


Investment Value on 31st Jan 2018 (Grandfathering Date): Rs 5 Lakhs

Redemption Date: 1st May 2019; Value on Redemption Date: Rs 620,000


So, the above table shows that investors do not have to worry about the gains they have made historically, since all gains made prior to 31st Jan 2018 are tax free. As we see in the table above, in the first case, on a total gain of Rs 210,000 made over 2 years, the tax liability comes to just Rs 2,000. Also, long term capital gains made after the grandfathering date, upto Rs. 1 lakh, will be exempt.

Focus should be on the Goal: Further, it’s not just about tax, the investors must realize that they invested in Equity Mutual Funds with a goal in mind. If the goals are still far way, one need not worry about tax, rather they should stick to their investments. As such, in the long term – there is no other instrument that can match equity’s return despite the LTCG taxation @ 10% for gains over & above 1 lakh.

Source: NJ Wealth