CBDT Explains How the LTCG Tax Would Work in Four Different Scenarios

New Delhi: Soon after Finance Minister Arun Jaitley presented the Budget on February 1, CBDT Chairman explained the move of taxing long-term capital gains and said that keeping it untaxed was proving to be a "disincentive" for the manufacturing sector and thus it has been taxed in the Budget to create balance in the taxation system. The Budget has provisioned a 10% tax on LTCG on stocks and equity-oriented mutual funds if the amount of gains exceed Rs 1 lakh.

The Central Board of Direct Taxes (CBDT) has explained how the tax on long-term capital gains would work in different scenarios.

According to a report by moneycontrol.com, the CBDT has come up with four possible scenarios to explain it:

Scenario 1: If you manage to acquire an equity share at the price of Rs 100 (on January 1, 2017) with a fair market value of Rs 200 on January 31, 2018 and sell it for Rs 250 on April 1, 2018; the fair market value of Rs 200 will be considered as the cost of acquisition and Rs 50 will be counted as the long-term capital gain in this case (Rs 250 minus 200).

Scenario 2: On the other hand, if you acquire an equity share at the price of Rs 100 (on January 1, 2017) with a fair market value of Rs 200 on January 31, 2018 and sell it for Rs 150 on April 1, 2018; the sale value of Rs 150 will be considered as the cost of acquisition and long-term capital gain would then stand at Rs 0 (Rs 150 minus 150).

Scenario 3: You acquire an equity share of Rs 100 (on January 1, 2017). It has a fair market value of Rs 50 on January 31, 2018 and you sell it for Rs 150 on April 1, 2018. In this case, the actual cost of Rs 100 will be considered as the cost of acquisition and the long-term capital gain would stand at Rs 50 (Rs 150 minus 100), since the fair market value is less than the cost of acquisition.

Scenario 4: The other scenario would be when you acquire an equity share at Rs 100 on January 1, 2017, its fair market value is Rs 200 on January 31, 2018 and sell it on April 1, 2018 at a price of Rs 50. The long-term capital loss on this transaction would be Rs 50 (Rs 50 minus 100) as the sale value is less than the fair market value.