TAXABILITY OF LONG-TERM CAPITAL GAINS ON SALE OF LISTED EQUITY SHARES ETC.

Long term capital gains(LTCG) arising from transfer of long term capital assets, being equity shares of a company or an unit of equity oriented fund or an unit of business trusts, is exempt by virtue of section 10(38), provided sale and acquisition transactions carried out on a recognized stock exchange and are liable to securities transaction tax (STT).

Effective Amendment: In order to minimize economic distortions and curb erosion of tax base, section 10(38) has been withdrawn and now LTCGshall be taxed @10%if LTCG in excess of Rs. 1 lakh. To the effect of the same a new section 112A has been to be inserted with effect from A.Y. 2018-19.

All LTCG up to 31st January, 2018 will be grandfathered by way of providing that the cost of acquisitions in respect of the long term capital asset acquired by the assessee before the 1st day of February, 2018 , shall be deemed to be the HIGHER of –

  1. the actual cost of acquisition of such asset;

and

  1. b) thelower of –

(i) the fair market value of such asset on 31.1.2018 ; and

(ii) the full value of consideration received or accruing as a result of the transfer of the capital asset.

Also, such capital gains would neither be eligible for benefit of Chapter VI-A deductions nor rebate u/s 87A.

SHORT-TERM CAPITAL GAINS UNDER SECTION 111A

Short-term capital gains taxable under section 111A would continue to be taxable @15%.

Conversion of stock-in-trade into Capital Asset

Section 45 of the Act, inter alia, provides that capital gains arising from a conversion of capital asset into stock-in-trade shall be chargeable to tax. However, in cases where the stock in trade is converted into, or treated as, capital asset, the existing law does not provide for its taxability.

Effective Amendment: Section 28 has been amended to tax the profit or gains arising from conversion of inventory into capital asset or its treatment as capital asset as business income. The full value of the consideration received or accruing as a result of such conversion would be fair market value of the inventory on the date of conversion determined in the prescribed manner.

Further, for determining capital gain on transfer of such capital asset, the fair market value on the date of conversion shall be the cost of acquisition. The period of holding would be reckoned from the date of conversion or treatment.

It may be noted that business income would be taxable in the year of conversion and there is no provision for postponement of taxability of income to the year in which the transfer took place.

Transfer of Immovable Property

At present, while taxing income from capital gains (section 50C), business profits (section 43CA) and other sources (section 56) arising out of transactions in immovable property, the sale consideration or stamp duty value, whichever is higher is adopted. The difference is taxed as income both in the hands of the purchaser and the seller.

Proposed Amendment: Section 50C, 43CA & 56 proposed to be amended to provide that no adjustments shall be made in a case where the variation between stamp duty value and the sale consideration is not more than 5% of the sale consideration.

Deduction under section 54EC

Deduction under section 54EC is available in respect of capital gain, arising from the transfer of a long-term capital asset, invested in the long-term specified asset at any time within a period of six months after the date of such transfer. Long-term specified asset means any bond, redeemable after three years and issued on or after the 1st day of April, 2007 by the National Highways Authority of India (NHAI) or by the Rural Electrification Corporation Limited (RECL); or any other bond notified by the Central Government.

Note:-Now the locking period has been raised from 3Years to 5 years.