Thursday, 15 March 2018

LTCG Tax: Unlisted companies shares listed after Jan 31st, 2018 get indexation benefit




On 15th March, 2018 the government today extended indexation benefit for computing tax liability on sale of shares listed after January 31, though capital gains arising from such transactions will continue to be taxed at 20%.

The indexation benefit- which takes into account the impact of inflation on acquisition cost- will not be available on gains made from sale of listed securities, as per the amendments to the Finance Bill, which was passed by Lok Sabha today. 

This will also apply for unlisted shares which are substituted in tax neutral transfers (like amalgamation, demerger, gift, succession, etc) for shares which are listed on date of transfer.
LTCG on sale of unlisted shares is taxed at 20% when indexation is applicable, while short term capital gains are taxed at the income tax slab rates applicable to your income. The highest income tax slab rate is 30% for individuals. 

The amendments/clarifications proposed relating to LTCG are as follows: 

1. Finance Bill 2018 proposed to withdraw LTCG exemption for specified capital assets and introduce a LTCG tax regime for taxing LTCG exceeding Rs 1 lakh at the rate of 10% (plus applicable surcharge).

2. At the enactment stage, following amendments are made to address certain ambiguities and concerns raised by stakeholders.

3. Benefit of indexation and foreign exchange fluctuation will not be available in computing the LTCG even in case of loss. 

4. The grandfathering of gain till 31 January 2018 is incorporated in the computation of LTCG itself rather than merely for the purposes of computing tax @ 10%. This resolves the ambiguity contained in language of FB 2018 on need for a duplicated computation viz. first for computing LTCG without grandfathering and then for applying 10% tax rate with grandfathering. 

5. The fair market value of shares which are unlisted on 31 January 2018 but listed on date of transfer shall be indexed cost of acquisition. This will also apply for unlisted shares which are substituted in tax neutral transfers (like amalgamation, demerger, gift, succession, etc) for shares which are listed on date of transfer. 

6. While tax payable on LTCG on specified capital assets exceeding Rs 1 lakh shall be at 10%, the tax payable on total income as reduced by the amount of such LTCG shall be computed as if the total income so reduced were the total income of the taxpayer. 

7. Nangia & Co Managing Partner Rakesh Nangia said the amendment addresses the concerns of the community in respect of capital gains arising on transfer of unlisted shares that get listed after February 1, 2018. 

Thus based on this amendment we believe that there shall be increase in purchase of Unlisted, Pre –IPO shares in the years to come.


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