LTCG (long-term capital gains) tax has been proposed in the 2018 Union Budget for equity linked gains and equity based mutual funds. Union Finance Minister Arun Jaitley has proposed a tax of 10% on capital gains which surpass Rs. 1 lakh in a specific financial year on the sale of investments in specified investment instruments. It has already been stated that taxability only comes into the picture in case of asset transfers post the 1st of April, 2018.
Capital gains up to the 31st of January, 2018, will be exempted from taxes. This means any gains up to this time which are sold post the 1st of April, 2018. The Income Tax Department has also issued its clarification that computation of these gains will be done minus any indexation benefits which connect the cost inflation index to the price of acquisition.
These taxes are only restricted to equity based mutual funds. Taxes have not been changed in case of debt funds. Short term capital gains from debt funds are taxed as per the prevailing taxation slab of the person while long-term capital gains are taxed at the rate of 20% in case of holding the same for more than 3 years and indexation adjustments as per experts. Mutual fund schemes which have more than 65% of their total assets in equity will fall under the classification of equity-oriented mutual fund schemes.
As a result, those investing in debt funds do not have to panic. Their tax incidence will remain the same as before. However, those investing in equity based mutual funds should do the math after consulting their financial advisors or tax planners.