Income Tax on LTCG; when to pay 0% Tax on LTCG

Tax @ 0% of Capital Gain - Terms & Conditions

The Income Tax Act provides a benefit for LTCG's in equities. There are two conditions that need to be present and this is that the shares should be traded on an approved stock exchange and the other is that the securities transaction tax has to be paid on it. When these two conditions are approved then the long term capital gains tax that is arising on equities would be subject to a 0% tax rate. The term LTCG's means that gains that have occurred after holding the equity for a period of 12 months or more. The GAIN means that the sale price of the equity is more than the cost involved in purchasing it. In normal circumstances if this is the case then there would have to be a tax paid on the gains but since there is a specific exemption in the form of a 0% tax then there would not be any tax that would need to be paid. The saving of the tax can increase the net returns for the investor and if possible they should be looking at making use of this opportunity.

Terms & Conditions till March-2017

The best part about such benefits is that there is no distinction that is made between various holdings and as long as the overall conditions are fulfilled it will be all right. This means that the holding has to be equity shares and one does not have to worry about which share has been bought and whether this will have the tax benefit coming along with it. There has to be a proper way in which the shares can be identified and at the present moment due to the fact that there is an all round benefit one does not have to worry much about the details.

Recent Changes in Finance Bill, 2017

The problem can arise in case there are any restrictions and this would mean things like certain stocks not getting the benefit. Such a condition has been added in the budget wherein if shares did not have STT (Securities Transaction Tax) paid at the time of its purchase after October 1, 2004 then the 0% rate would not be available. Some genuine transactions like IPO, FPO, bonus shares etc. would be out of this ambit. But if there are any such restrictions then one would need to be aware of them and this should be checked before the investment is actually made rather than later. This would prevent a situation wherein the individual believes that they have the benefit but this does not turn out to be correct. This can lead to a tax payment as well as disruption of the planning process and hence is something that has to be avoided at all cost.

For more details, feel free to contact us at [email protected]

Regards, CA Rahul Gupta

(Practicing Chartered Accountants)

M R T & Associates, Chartered Accountants