Currently, long term capital gains arising from transfer of listed equity shares or units of equity oriented fund or units of business trusts, are exempt from income-tax under Section 10(38) of the Act. In order to minimize the economic distortions and curb erosion of tax base, it is proposed to withdraw this exemption and to introduce a new section 112A in the Act.
As per new proposed Section 112A, long term capital gains arising from transfer of an equity share, or a unit of an equity oriented fund or a unit of a business trust shall be taxed at 10% of such capital gains. Such capital gains tax shall be levied in excess of Rs. 1 lakh. This concessional rate of 10% will be applicable if STT has been paid on both acquisition and transfer of such capital asset, in case of equity shares, and paid at the time of transfer in case of unit of equity oriented fund or a unit of a business trust.
The long term capital gains shall be computed without giving effect to the first and second provisos to section 48, i.e. inflation indexation in respect of cost of acquisitions and improvement, if any, and the benefit of computation of capital gains in foreign currency in the case of a non-resident, will not be allowed.
The cost of acquisitions of such long term capital asset, acquired by the taxpayer before the February 1, 2018, shall be deemed to be the higher of following:
(a) The actual cost of acquisition of such asset; or
(b) Lower of FMV of such asset or full value of consideration as accruing on its transfer.
The FMV of a listed equity share shall mean its highest price quoted on the stock exchange on January 31, 2018. However, if there is no trading in such shares on such exchange on January 31, 2018, the highest price of such asset on such exchange on a date immediately preceding January 31, 2018.
While in case of units which are not listed on recognized stock exchange, the net asset value of such units as on January 31, 2018 shall be deemed to be its FMV.
The capital gains has been kept out of preview of Chapter VIA deductions and relief under Section 87A. It means, the deduction under chapter VIA and relief under Section 87A shall be allowed from the gross total income as reduced by such capital gains. These amendments will take effect from 1st April, 2019.