The Finance Bill 2018, as introduced in Parliament today, is available for download. There are several important amendments proposed by the Finance Bill 2018 to the Income-tax Act, 1961, including the taxation of long-term capital gains (LTCG) at 10%.
As per the Finance Bill 2018, the long term capital gains on investments in equities exceeding Rs 1 lakh will be taxed at 10% without allowing benefit of indexation. The gains made till January 31 will be grandfathered.
Finance Bill 2018: Relevant provisions from the Budget speech
Rationalisation of Long Term Capital Gains (LTCG)
155. Madam Speaker, currently, long term capital gains arising from transfer of listed equity shares, units of equity oriented fund and unit of a business trust are exempt from tax. With the reforms introduced by the Government and incentives given so far, the equity market has become buoyant. The total amount of exempted capital gains from listed shares and units is around `3,67,000 crores as per returns filed for A.Y.17-18. Major part of this gain has accrued to corporates and LLPs. This has also created a bias against manufacturing, leading to more business surpluses being invested in financial assets. The return on investment in equity is already quite attractive even without tax exemption. There is therefore a strong case for bringing long term capital gains from listed equities in the tax net. However, recognising the fact that vibrant equity market is essential for economic growth, I propose only a modest change in the present regime.
I propose to tax such long term capital gains exceeding `1 lakh at the rate of 10% without allowing the benefit of any indexation. However, all gains up to 31st January, 2018 will be grandfathered. For example, if an equity share is purchased six months before 31st January, 2018 at `100/- and the highest price quoted on 31st January, 2018 in respect of this share is `120/-, there will be no tax on the gain of `20/- if this share is sold after one year from the date of purchase. However, any gain in excess of `20 earned after 31st January, 2018 will be taxed at 10% if this share is sold after 31st July, 2018. The gains from equity share held up to one year will remain short term capital gain and will continue to be taxed at the rate of 15%. Further, I also propose to introduce a tax on distributed income by equity oriented mutual fund at the rate of 10%. This will provide level playing field across growth oriented funds and dividend distributing funds. In view of grandfathering, this change in capital gain tax will bring marginal revenue gain of about `20,000 crores in the first year. The revenues in subsequent years may be more.
LIVE: FM @arunjaitley presenting #Budget2018, announcing measures on rationalizing long-term capital gains #NewIndiaBudget https://t.co/fJz6Gbnght
— PIB India (@PIB_India) February 1, 2018
What will be justification to levy MAT @ 20% (minimum alternative tax) when now Maximum LTCG on STT paid shares will be @10% from 1-4-18