The government of India passed the Union Budget of 2018 with some changes in the fiscal policies. Since the country is in the post-demonetisation recovery phase, the majority of the changes were done in the taxation policies. One such reformation includes the revision of the Long Term Capital Gains (LTCG) Tax. Not paying heed to the new tax policy can land you in trouble. Hence, it is important that you understand the change and take necessary steps to avoid losing your money.
What is Long-Term Capital Gains (LTCG) Tax?
To understand the change, we first need to understand the concept of this taxation policy. The profit gained from the sale or transfer of an asset is considered as capital, which includes real estate, bonds, equities etc. Furthermore, these gains are bifurcated in two parts, i.e. long-term gains and short-term gains. Capital gains from assets owned for more than 36 months is considered as long-term gains and gains realised from assets held less than 36 months are short-term gains.
According to the budget of 2018,the long-term capital gains will be taxed at 10% for the amount over Rs 1 lakhs and short terms capital gains at 15% for the same amount, while capital gains below Rs 1 lakh are tax-free. Capital gains from the sale of an asset after March 31, 2018 will be taxable under the new LTCG Tax regime.
Long-Term Capital Gains Tax can affect your gained income heavily from the sale or transfer of stocks in the market. The amount of capital taxed on the gains could affect your investment power or expected returns from the investment. However, the government has mentioned specific exemptions for sectors which deal in the buying and selling of physical or virtual assets. Which means that there are ways which can be used to save your money.
Grandfathering is one of the exemptions offered by the government to save money from deduction and is applicable on the capital gained before 31st March 2018. People who have sold their assets before 31st March 2018 or on 31st March 2018 will be taxed according to the older tax rates or tax percentage.
Section 54EC is one of the exemptions which come with a downside. The investor can avail tax relief if he or she chooses to invest the capital gains in long-term government issued bonds like National Highway Authority of India or by the Rural Electrification Corporation Limited.
The best way to deal with Long Term Capital Gains (LTCG) Tax is if you hold on to your assets for some time, till they cross the long-term period. Apart from that investing in government schemes can be your last resort.