The Finance Bill, 2018, has proposed to provide for a new long-term capital gains tax regime for equity shares, unit of an equity-oriented fund, and unit of a business trust
Amid adverse reactions coming from stock markets to the proposed long-term capital gains tax on securities, the income-tax department on Sunday clarified that price indexation (adjustment to inflation) will not be available for this tax. The tax comes into effect from April 1, 2018, the clarifications said. | Today’s Paper
Here are the other responses to the frequently asked questions around long-term capital gains tax:
What has been proposed, according to the I-T dept clarifications?
Under the existing regime, long-term capital gains arising from the transfer of long-term capital assets, being equity shares of a company or a unit of the equity-oriented fund or a unit of a business trust, is exempt from income-tax under clause (38) of section 10 of the Act. However, transactions in such long-term capital assets are liable to securities transaction tax (STT).
Consequently, this regime is inherently biased against manufacturing and has encouraged diversion of investment to financial assets. It has also led to significant erosion in the tax base resulting in revenue loss.
The problem has been further compounded by the abusive use of tax arbitrage opportunities created by these exemptions.
In order to minimise economic distortions and curb erosion of tax base, it is proposed to withdraw the exemption under clause (38) of section 10 and to introduce a new section 112A in the Income-tax Act, 1961 vide clause 31 of the Finance Bill, 2018, so as to provide that long-term capital gains arising from transfer of such long-term capital asset exceeding Rs 100,000 will be taxed at a concessional rate of 10 per cent.
What is the meaning of long-term capital gains under the new tax regime?
Long-term capital gains mean gains arising from the transfer of long-term capital asset.
The Finance Bill, 2018 proposes to provide for a new long-term capital gains tax regime for the following assets:
i. Equity Shares in a company listed on a recognised stock exchange;
ii. Unit of an equity oriented fund; and
iii. Unit of a business trust.
The proposed regime applies to the above assets, if –
a. the assets are held for a minimum period of twelve months from the date of acquisition; and
b. the Securities Transaction Tax (STT) is paid at the time of transfer. However, in the case of equity shares acquired after 1.10.2004, STT is required to be paid even at the time of acquisition (subject to notified exemptions). | Readmore…