INSUBCONTINENT EXCLUSIVE:
The grandfather clause will help lower tax outgo on sale of mutual funds/ equity
As the new financial year
has kicked off, the income tax (I-T) department's new rules, announced by Union Finance Minister Arun Jaitley on February 1 at the time of
announcement of Budget, have come into force
One of the major put-offs for regular stock market investors turned out to be the re-introduction of long term capital gains (LTCG) on the
equity investments and equity mutual funds after a gap of 14 years
Though the rate at which the capital gain will be taxed is 10% on equity and mutual funds, and no indexation benefit is allowed, but the
only solace offered to the tax payers is that the capital gains accrued prior to January 31 on mutual funds/ equity will be grandfathered
Going by the literal meaning of the 'grandfather' clause, it is the continuation of existing rules in some situations and exemption that
allows persons to continue with activities that were approved before the implementation of new rules, or laws.For the tax on LTCG to get
liable, there must be a difference of at least Rs 1,00,000 between the cost of acquisition and the amount of sale.: Seven Income Tax Rules
That Will Come Into Effect From Today'Grandfather' Clause: Five Things To Know1
The grandfathered concept implies that all the gains on mutual funds/ equity until January 31 will be exempt from taxation
This only means that the income tax will not be implied with retrospective effect, but with prospective effect.2
The income, accruing on the long term capital gains (LTCG) on listed equities/mutual funds has been grandfathered for the residents, and for
the non-resident assesses
The grandfathering clause exemption will also cover foreign institutional investors (FIIs), as clarified by the income tax (I-T) department
a day after the announcement of Budget 2018-19 by the Union Minister Arun Jaitley.3
Any gains prior to January 31 are grandfathered
This means the capital gains will be zero if the sale price of equity/ mutual funds is more than the cost of acquisition but less than the
The tax payer will stand to gain when the shares market price on January 31 was lower against the acquisition cost
Since the higher of two values is chosen (between the cost of acquisition and the price on January 31), the investor stands to gain.: LTCG
Grandfathered For Residents As Well As Non Residents
When the sale price of equity or mutual funds is lower than the acquisition cost as well as from its price on January 31, then instead of
the higher, one must take into consideration the lower of the two values for calculating the LTCG
For example: An equity share is bought on January 1, 2017 for Rs 100, its fair market value is Rs 200 on January 31, 2018 and sold on April
In this case, the actual cost of acquisition is less than the fair market value as on 31st January, 2018
The sale value is less than the fair market value as on 31st of January, 2018 and also the actual cost of acquisition
Therefore, the actual cost of Rs
100 will be taken as the cost of acquisition in this case
Hence, the long-term capital loss will be calculated at Rs 50 (Rs
