A golden advice for all equity investors

If an equity share is purchased before January 31, 2018, at Rs 100 and the highest price quoted on January 31, 2018, in respect of this share is Rs 120, there will be no tax on the gain of Rs 20.

It is better to wait beyond March 31 this year to sell equity shares or units of equity-oriented mutual funds if one is incurring losses.

This is so because these losses can be set off for long-term capital gains (LTCG) tax, to come into force from April 1 this year.

These losses can be set off for a period of eight years.

"Long-term capital loss arising from transfer made on or after April 1, 2018, will be allowed to be set-off and carried forward.

"Unabsorbed loss can be carried forward to subsequent eight years for set-off against long-term capital gains," clarified the Central Board of Direct Taxes (CBDT) through frequently asked questions (FAQs).

The Budget for 2018-19 proposes to levy a 10 per cent LTCG tax on gains above Rs 100,000 from selling securities.

But, all gains up to January 31, 2018, will be grandfathered, or in simple terms will not draw this tax.

For instance, if an equity share is purchased before January 31, 2018, at Rs 100 and the highest price quoted on January 31, 2018, in respect of this share is Rs 120, there will be no tax on the gain of Rs 20.

However, any gain in excess of Rs 20 earned after January 31, 2018, will be taxed at 10 per cent if this share is sold after March 31, 2018.

The gains from equity shares held up to one year will remain short-term capital gain and will continue to be taxed at the rate of 15 per cent.

Prior to the Budget announcement, long-term capital gains arising from the transfer of equity shares of a company or a unit of an equity-oriented fund or a unit of a business trust was exempt from income tax under Clause (38) of Section 10 of the Act.

However, transactions in such long-term capital assets were liable to securities transaction tax (STT).

"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," the FAQs stated.

The exemption has now been withdrawn to minimise economic distortions and curb erosion of the tax base, these clarifications said.

Meanwhile, ace investor Jim Rogers expressed his displeasure at the LTCG tax on Monday.

"LTCG tax is a mistake; I'll not invest in India in 2018," he tweeted.

Photograph: Mansi Thapliyal/Reuters