Long-Term Capital Gains (LTCG)
If equity shares listed on a stock exchange are sold after 12 months of purchase, the seller may make a long-term capital gain (LTCG) or incur a long-term capital loss (LTCL).
Before the introduction of Budget 2018, the long-term capital gain made on the sale of equity shares or equity-oriented units of mutual funds was exempt from tax, i.e. no tax was payable on gains from the sale of long-term equity investments.
The Financial Budget of 2018 took away this exemption. Henceforth, if a seller makes a long-term capital gain of more than Rs.1 lakh on the sale of equity shares or equity-oriented units of a mutual fund, the gain made will attract a long term capital gains tax of 10% (plus applicable cess). Also, the benefit of indexation will not be available to the seller. These provisions will apply to transfers made on or after 1 April 2018.
Also, this new provision was introduced prospectively, i.e. gains starting from the 1st of Feb 2018 will only be considered for taxation. This is known as the ‘grandfathering rule’. Any long-term gains from the equity instruments purchased before the 31st of January 2018 will be calculated according to this ‘grandfathering rule
