Union Budget Hits Equity Investors Hard
Finance Minister Arun Jaitley left investors dejected with his tax proposals , explains Rakesh Bhargava
The Finance Minister presented his last full Union Budget for the fiscal year 2018-19 on February 1 . As general elections will be held next year in 2019 , the Union Budget to be presented in the month of February 2019 shall be an interim Budget and the full Budget for the year 2019 shall be presented by the newlyelected government . All investors were eagerly expecting big announcements in this budget . However , finance minister Arun Jaitley has disappointed both retail and institutional investors . The biggest jolt given by the Budget is the withdrawal of exemption for long-term capital gains from listed equity shares under Section 10 ( 38 ) and introduction of tax on such gains at a flat rate of 10 per cent without giving the benefit of indexation . In capital gains , three provisions are worth talking about . Two of them are not in investors ’ favour and one provides mild relief to owners of immovable properties .
No more exemption for capital gains
Currently , long-term capital gains arising from transfer of listed equity shares , units of equity-oriented mutual funds or units of business trusts are exempt from tax under Section 10 ( 38 ) of the Income Tax Act . In order to minimise the economic disruptions and curb erosion of tax base , the finance minister proposes to withdraw this exemption and introduce a new Section 112A in the Act . As per the proposed Section 112A , long-term capital gains arising from transfer of an equity share , a unit of an equity-oriented scheme or a unit of a business trust shall be taxed at 10 per cent of such capital gains . Such capital gains tax shall be levied in excess of `1 lakh . This concessional rate of 10 per cent will be applicable if securities transaction tax ( STT ) has been paid on both acquisition and transfer of such capital assets in case of equity shares , and paid at the time of transfer in case of unit of equity-oriented fund or a unit of a business trust .
Though the tax rate has been kept at 10 per cent , it shall be charged on the capital gains as computed without giving the benefit of indexation to the investor . Indexation is a process meant to increase the cost of acquisition , which nullifies the impact of inflation . The indexation process takes into account inflation from the time the tax-payer buys the asset to the time he sells it . Indexation increases the cost of acquisition of the asset . The indexation benefit is generally allowed in case of transfer of a long-term capital asset . However , such benefit shall not be allowed in case of transfer of listed equity shares . This new provision to tax long-term capital gains arising from transfer of listed equity shares shall be applicable for all those share trades that are done on or after April 1 , 2018 . However , an interim relief has been provided to the investors wherein an option is given to the investor to assume a different purchase price of the shares held by them . In case of listed equity shares acquired by an investor before February 1 , 2018 , he can assume that the purchase price of such equity shares shall be higher of following : a ) The actual purchase price of such equity shares ; or b ) Fair market value of such equity shares or the actual sales consideration , whichever is lower . The fair market value of listed equity shares shall mean its highest price quoted on the stock exchange on January 31 , 2018 . In case of units which are not listed on recognised stock exchanges , the net asset value of such units as on January 31 , 2018 shall be deemed to be its fair market value . This capital gain has been kept out of the purview of Chapter VIA deductions and relief under Section 87A . It means a taxpayer cannot claim any deduction under Sections 80C to 80U or relief under Section 87A from the gross total income to the extent of such capital gains . If an investor has only made long-term capital gains of
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Outlook Money February 2018 www . outlookmoney . com