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What are Capital Gains?

To understand the LTCG tax, it is essential to first gather a better understanding about CapitalGains. When an investor sells his capital asset for a price higher than its purchase price, theprofit he makes is called Capital Gains. The transfer of capital asset must be made the previousyear itself. This is taxable under the head ‘Capital Gains’ and there must exist a capital asset,transfer of the capital asset and profit or gains arising from the transfer.Capital gains usually include all property possessed by the owner, but there are a fewexceptions.

Some of the following properties will not qualify to be stated under capital gainsand they are:

• Stocks in trade
• Consumable stores or raw materials held for the purpose of business or profession.
• Personal effects that are movable except jewellery, archaeological collections, drawings, paintings, sculptures or any art work held for personal use.
• Agricultural land. The land must not be located within 8kms from a municipality, Municipal Corporation, notified area committee, town committee or a cantonment board with a minimum population of 10,000.
• 6.5 percent Gold Bonds, National Defence Gold Bonds and Special Bearer Bonds.
• Gold Deposit bonds under Gold Deposit Scheme.

What is LTCG tax?

The tax levied on the profit incurred by an asset that comes under real estate, shares or share-oriented products held for a specific time frame is called Long Term Capital Gain tax. Thedefinition of Long-term Capital Gains, or LTCG, is different for various products. Recently, during the Union Budget 2018, the Finance Minister of India re-introduced LTCG taxon stocks. As per the Union Budget 2018, Long Term Capital Gains on sale of listed securitiesthat exceed Rs. 1 Lakh will be taxed at 10%. Till now, LTCG was exempt from tax. The definitionof a long-term investor in stocks for tax purposes is one year.

The purpose of grandfathering in LTCG

The term ‘Grandfathering’ is the exemption granted to, existing investors or profits incurred bythem before the new law comes into action. The government has to always ensure thatinvestors, who have committed money using the previous tax module, remain protected. Thegovernment of India has decided to ensure that as per LTGC tax on shares, the shares or equitymutual funds made till January 31 will be grandfathered. There will be no LTCG tax on notionalprofit in shares till then.

The ones to fall under the LTCG tax net

The Budget proposes that LTCG tax will have to be paid on profit booked after March 31. If yousell, a stock that has been held for more than a year before March 31, you do not pay tax. So,for tax purposes, there should not be any motivation for investors to sell in February andMarch. However, if you sell it on or after April 1, LTCG tax will apply on the gains made. It is also important to note that the tax is applicable only if LTCG is above Rs 1 lakh in a financialyear.

Calculation of LTGC tax

When an investor decides to sell a stock or equity mutual fund that was held for a year after April1, the LTCG tax will be calculated on the basis of the acquisition price or closing price which ever is the higher of the two.

So, while you are deciding to make a purchase of a new apartment or home, make sure you understand the tax implications related to the deal and always remember to associate with a trusted builder like Kalyan Developers who as a range of apartments in the most prime locations in Kerala.