[MBA Case Study]: LTCG tax on equity shares

The Budget 2018 proposes to change how LTCG on equity shares and units of equity-oriented MFs are taxed in your (an individual’s hands).

If you sell after 31.3.2018 the LTCG will be taxed as follows: (Also refer to tables at the bottom)
1. The cost of acquisition of the share or unit bought before Feb 1, 2018, will be the higher of :
a) the actual cost of acquisition of the asset
b) The lower of : (i) The fair market value of this asset(highest price of share on stock exchange on 31.1.2018 or when share was last traded. NAV of unit in case of a mutual fund unit) and (ii) The sale value received/accrued when the share/unit is sold.

Effective financial year 2018-19, long term capital gain arising from sale of equity share is proposed to be taxed at the rate of 10% on a gain exceeding 100,000 without allowing any benefit of indexation. However, all gains up to 31st January, 2018 will be exempt. Similarly, distribution by the equity oriented mutual fund shall attract tax @ 10%. This shall act as major dampener for the investors.

MBA assignment question (NMIMS and other colleges):

Mr. Fernandez has a portfolio of equity shares worth Rs. 2 crores by current market valuation. He had inherited the shares from his father 10 years ago. He has become extremely concerned about the introduction of 10% LTCG tax on equity shares in this year’s Union Budget. Not sure about the impact of this newly introduced tax, he is contemplating selling of all the shares before 31st March 2018, and escaping the taxation. He has sought your opinion on this. Prepare a detailed report citing the implications of the LTCG tax, and guide Mr. Fernandez in his decision making.

studymumbai

StudyMumbai.com is an educational resource for students, parents, and teachers, with special focus on Mumbai. Our staff includes educators with several years of experience. Our mission is to simplify learning and to provide free education. Read more about us.