- 9 MAR 2018
Know All About Long Term Capital Gain Taxes
There has been a lot of discussion around the long-term capital gain tax post this budget. There is a lot ambiguity and misconceptions relating to the same. This article will help you better understand capital gains, implications of the budget announcement and most importantly - help you save tax!
First things first, capital gain refers to profits which are derived on transfer or sale or extinguishment of a capital asset. Capital asset refers to a wide variety of items. It includes movable and immovable property such as land, building, furniture, plant and machinery, etc. Shares and securities are also capital assets.
Now, the question arises that what is ‘Long term’ capital gain? Capital gains can be categorized into types – long term and short term capital gain. Nature of capital gain depends upon the period of holding. Short term capital gain arises when shares or securities are sold within 12 months from date of purchase. Naturally, period of holding is more than 12 months for a long term capital asset. Demarcating factor of 12 months differs based on the type of capital asset.
In 2004, Government of India had exempted long capital gain tax on sale of listed shares and certain securities. These include units of an equity oriented fund and business trust. Listed shares refer to those scrips which are listed on a recognized stock exchange and STT has been paid on the same. Whereas, short term capital gain was taxed at an overall blanket rate of 15%
The Indian equity market has given exceptional returns for the past few years. Such income went untaxed in the hands of the government. However, there are certain exemptions available:
- Long term capital gains up to Rs. 100,000 will not be subject to tax i.e. if your profits are Rs. 500,000 then you only have to pay tax of 10% on Rs. 400,000 will have to be paid.
- Sale of shares up to March 31, 2018 will not be subject to tax. Thus, you can avoid payment of capital gain tax by selling your existing shares on or before the date.
- ‘Grandfathering Clause’ was also introduced. Grandfathering clause means that any capital gain which arises to existing investors up to March 31, 2018 will be exempt. Thus, taxes shall be calculated on gains from prices of March 31, 2018 and upwards.
Thus, there is a clear indication that investment in equity and equity oriented products such as mutual funds will be costlier. In all probabilities, there will be a shift from pure equity investments at other products. More and more investors have been shifting to ULIPs. They are hybrid products, a combination of mutual funds and insurance product.
ULIPs refer to unit linked insurance plans. Premium paid by you is invested in the equity markets. ULIP products have an NAV (Net Asset Value) assigned. Units are assigned basis the amount of premium paid. In the event of death of the insured, the beneficiary is entitled to the market value of units assigned.
Further, ULIPs is also a tax saving instrument. ULIPs are exempted from long term capital gain tax. Investment in ULIP can also be claimed as a deduction under section 80C. Thereby, considerably reducing your tax liability. Over and above that, ULIPs also provides insurance cover.
Hence, ULIP is a steal deal for investors considering the ongoing tax levy season!
- 24 MAY. 2018
The most recommended ULIP to strengthen your financial portfolio
We have dreams and responsibilities to fulfill. Today these dreams seem far-fetched, perhaps due to financial constraintsread more