Long Term Capital Gains on Equity Shares & Equity Oriented Funds Taxed @ 10% – Modus of Computation with Sample Calculation

Long Term Capital Gains on Equity Shares & Equity Oriented
Funds Taxed @ 10% – Modus of Computation with Sample Calculation

By CA Ankit Gulgulia (Jain)

As Expected by Many the Finance
Minister Arun Jaitley has Introduced Long Term Capital Gains in Equity Shares
and Equity Oriented Funds at the Tax Rate of 10%. 

The Taxes shall arise for
Gains Booked on Long Term Capital Assets being an equity share
in a company or a unit of an equity oriented fund or a unit of a business
trust, made on or after the 1st day of April, 2018

For facilitating this taxation, A New Section 112A
have been Introduced. The Provisions of 112A are as follows:-

(1) Notwithstanding
anything contained in section 112, the tax payable by an assessee on his total
income shall be determined in accordance with the provisions of sub-section (2), if

(1) the total income includes any
income chargeable under the head “Capital gains”;

(i1) the capital gains arise from the
transfer of a long-term capital asset being an equity share in a company or a
unit of an equity oriented fund or a unit of a business trust;

(iii)
securities
transaction tax under Chapter VII of the Finance (No.2) Act, 2004 has,-

(a) in a case where the long-term capital asset is
in the nature of an equity share in a company, been paid on acquisition and
transfer of such capital asset; or

(b) in a case where the long-term
capital asset is in the nature of a unit of an equity oriented fund or a unit
of a business trust, been paid on transfer of such capital asset

(2) The tax payable by the assessee on the
total income referred to in sub-section ( 1) shall be the aggregate of- 

(1) the amount of income-tax
calculated on such long-term capital gains exceeding
one lakh rupees at the rate of ten per cent.; and

(i1) the amount of income-tax payable
on the balance amount of the total income as if such balance amount were the
total income of the assessee

Provided that in the case of an individual or a
Hindu undivided family, being a resident, where the total income as reduced by
such long-term capital gains is below the maximum amount which is not
chargeable to income-tax, then, the long-term capital gains, for the purposes
of clause (1), shall be reduced by the amount by which the total income
as so reduced falls short of the maximum amount which is not chargeable to
income-tax

( 3) The condition specified in clause (iii) of sub-section ( 1) shall not
apply to a transfer undertaken on a recognised stock exchange located in any
International Financial Services Centre and where the consideration for such
transfer is received or receivable in foreign currency.

( 4) The Central Government may, by notification
in the Official Gazette, specify the nature of acquisition in respect of which
the provisions of sub-clause (a) of clause (iii)
of sub-section ( 1) shall 5 not apply.

(5) The capital gains under sub-section ( 1) shall
be computed without giving effect to the provisions of the first and second
provisos to section 48.

( 6) The
cost of acquisition for the purposes of computing capital gains referred to in
sub-section ( 1) in respect of the long-term capital asset acquired by the assessee before the 1st day of February, 10 2018, shall
be deemed to be the higher of–

“fair market value” means,- (1) in
a case where the capital asset is listed on any recognised stock exchange, the highest price of the capital asset
quoted on such exchange on the 31st day of January, 2018:

Provided that where there is no trading in such
asset on such exchange on 31st day of 40 January, 2018, the highest price of such asset on such
exchange on a date immediately preceding the 31st day of January, 2018 when
such asset was traded on such exchange shall be the fair market value;

(ii)
in
a case where the capital asset is a unit and is not listed on a recognised
stock exchange, the net asset value of such asset as on the 31st day of
January, 2018;

(7) Where the gross total income of an
assessee includes any long-term capital gains referred to in sub-section ( 1), the deduction under Chapter VI-A shall
be allowed from the gross total income as reduced by such capital
gains.

(8) Where the total income of an assessee includes
any long-term capital gains referred to in 20 sub-section ( 1), the rebate under section 87 A shall be
allowed from the income-tax on the total income as reduced by tax
payable on such capital gains.

What
is Equity oriented fund?

Equity oriented fund means a fund set up under a
scheme of a mutual fund specified under clause (230) of section 10 and 25
(1) in a case where the fund invests in
the units of another fund which is traded on a recognised stock exchange,

(A) a minimum of ninety per cent. of
the total proceeds of such fund is invested in the units of such other fund;
and

(B) such other fund also invests a
minimum of ninety per cent. of its total proceeds in the 30 equity shares of
domestic companies listed on a recognised stock exchange; and

(ii)
in
any other case, a minimum of sixty-five per cent. of the total proceeds of such
fund is invested in the equity shares of domestic companies listed on a
recognised stock exchange:

Provided that the percentage of equity
shareholding or unit held in respect of the fund, as the case may be, shall be
computed with reference to the annual average of the monthly averages of 35 the
opening and closing figures;

(c) “International Financial Services
Centre” shall have the meaning assigned to it in clause (q) of section 2
of the Special Economic Zones Act, 2005;

(d) “recognised
stock exchange” shall have the meaning assigned to it in clause (i1) of
Explanation 1 to clause (5) of
section 43.’