[A] INTRODUCTION
The finance act of 2018 brought about a change in the way Long Term Capital Gain [LTCG] on listed equity shares & Units of Equity Oriented Funds are taxed. Earlier to this act there was exemption from payment of tax under Section 10(38) of the Income Tax Act.
Now instead of Section 10(38), Section 112A has been introduced to tax such LTCG at the rate of 10% on gains over Rs. 1 Lakh per year. The benefit of indexation has also been done away with.
[B] CONCEPT OF GRANDFATHERING
Whenever a new clause is introduced a certain relief is provided to the taxpayers to adjust to the new law which is called as the concept of grandfathering.
This concept works as follows:
STEP # 1: Compute minimum of Fair Market Value or Sale Value
Fair Market Value = Highest value the asset has achieved on 31st Jan 2018 or
the last trade date for that asset.
Sale Value = Actual sale value achieved from the sale of the asset after
payment of brokerage, STT and other costs.
STEP # 2: Compute MAXIMUM of ‘Value as per STEP # 1’ or the Actual purchase cost.
Such value as derived under STEP # 2 shall be the revised cost of acquisition
STEP # 3: Computation of Capital Gains
CAPITAL GAINS = SALE VALUE – SELLING COSTS – REVISED COST OF ACQUISITION
Tax shall be levied at a flat rate of 10% exceeding Rs.1 Lakh of LTCG.
[C] LTCG SIMULATION SHEET
Here is a fully functional LTCG simulation sheet for further understanding.