When finance minister Arun Jaitley brought back the long-term capital gains (LTCG) tax on equities and equity-oriented mutual funds in the Union Budget 2018, he said that gains up to 31 January 2018 will be grandfathered. Speaking a day after that date, on 1 February, what he meant was that only the future LTCGs will be taxed.
So, what is grandfathering? And why don’t we call it grandmothering? After all, we love our grandmothers just as well, do we not?
Coming back to the term grandfathering: its origins can be traced all the way back to the American Civil War, which was fought in the United States between 1861 and 1865. It broke out because while the then-newly crowned US president Abraham Lincoln wanted to abolish slavery, the southern states—where slavery was practiced on a large scale—did not agree with that decision.
The result was the states divided in two groups fighting each other in a brutal civil war. Up until then, the African-American slaves were denied many civil rights, including the right to vote. When the civil war got over—and the warring southern states that had seceded or severed their ties with the American Union (the government at that time) eventually joined the Union—the American government passed laws in 1870 that gave African-Americans the right to vote.
But some southern states at the time were still determined to keep African-Americans out, and introduced measures such as literacy tests to prevent them from voting . However, due to these tests, many white Americans too became uneligible to vote. So, the southern states said that those whose fathers and grandfathers had the right to vote before the war broke out, could continue to vote. This left out all the African-Americans because they had all been denied voting rights before the war. This rule came to be known as the grandfathering clause, as it protected the privileges enjoyed by our ancestors.
Shashi Tharoor, member of Parliament, told us that although the term grandfathering is “very American", its roots perhaps go way back to the year 1154, when King Henry II of England took over the throne from King Stephen. King Henry II was the son of Matilda, daughter of King Henry I. But history tells us that Matilda’s claim to the throne, after her father King Henry I passed away, was set aside by her cousin King Stephen. Later, when Henry II took over the throne in 1154, he allowed many laws passed by King Stephen to lapse and reinstated many laws that his grandfather King Henry I had passed. Thus, the term ‘grandfathering’ evolved as a situation where past privileges or powers can continue.
That’s all very well, but then why not also grandmothering; why just grandfathering? “Well, English is a very sexist language. The positivity is related to the man—let’s say ‘grandfathering’—but negative terms are related to the women. Like the term ‘witch’ (which) is used to describe an evil woman but there is no male equivalent," Tharoor said to us over the phone. So, as much as we love our grandmothers, as far the legality is concerned, the ‘grandfathering’ clause continues to be used for processes that reinstate past privileges .
And that’s how grandfathering protects our past LTCG gains from the past.