Say I purchased an equity share or mutual fund in April 2015 at ₹ 100 and grandfathered value on 31 January 2018 (FMV) is ₹ 150. Say, I sell or switch this share/mutual fund in June 2018 for ₹ 140. As per the new LTCG policy, my new cost price will now be ₹ 140. Hence there is no capital gain or loss. So, do I still have to report this transaction? If the answer is no; as there is a gain of ₹ 40 on my original investment, do I need to declare this gain under the exempted income section?
With effect from 1 April 2018, Long Term Capital Gains (LTCG) arising on the sale of listed shares or equity oriented mutual funds in India that are held for more than 12 months before sale, are taxable, to the extent such LTCG exceeds ₹ 100,000 in the given Financial Year (FY), provided securities transaction tax (STT) has been paid both at the time of purchase and sale of the shares/mutual funds. A special tax rate of 10% (plus applicable surcharge and cess) is payable on such LTCG exceeding ₹ 100,000.
Since you acquired these shares/mutual funds in April 2015 and assuming you have paid STT at the time of purchase and sale, you can opt to use the highest listed price of the shares as on 31 January 2018 in place of the actual cost of purchase, provided the listed price is lesser than the actual sales value. The resultant capital gain (if any), to the extent it exceeds ₹ 100,000, would need to be taxed at 10% plus applicable surcharge and cess. Accordingly, in your case, as the listed price on 31 January 2018, i.e., ₹ 150 is higher than the sale price, i.e., ₹ 140, your understanding that the cost of acquisition shall be deemed as ₹ 140 and consequently there shall be no capital gains or loss is correct. Until FY 2017-18, for transactions where although the capital gain is taxable, however the computed taxable value in nil, the same was still required to be appropriately disclosed in the tax return form under Schedule CG. Please note that the tax return forms for FY 2018-19 are yet to be prescribed. Hence, appropriate section under Schedule CG, for reporting the above referred LTCG under the amended provisions, may be evaluated in due course, once these forms are published.
Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India. Queries and views at firstname.lastname@example.org