{"id":10943,"date":"2018-02-05T10:06:46","date_gmt":"2018-02-05T04:36:46","guid":{"rendered":"http:\/\/www.itatonline.org\/info\/?p=10943"},"modified":"2018-02-05T10:07:19","modified_gmt":"2018-02-05T04:37:19","slug":"cbdt-issues-faqs-on-taxation-of-ltcg-as-per-finance-bill-2018","status":"publish","type":"post","link":"https:\/\/itatonline.org\/info\/cbdt-issues-faqs-on-taxation-of-ltcg-as-per-finance-bill-2018\/","title":{"rendered":"CBDT Issues FAQs On Taxation Of LTCG As Per Finance Bill 2018"},"content":{"rendered":"<p>The <a href=\"https:\/\/www.itatonline.org\/info\/download-finance-bill-2018\/\">Finance Bill 2018<\/a> has reintroduced the taxation of Long-term capital gains (LTCG) on stocks. The CBDT has issued a detailed FAQ dated 4th February 2018 in which it has addressed numerous questions relating to the method for calculation of long-term capital gains, the cost of acquisition, the fair market value, availability of inflation index, TDS obligations etc. The CBDT has also clarified the law applicable to capital gains earned by Foreign Institutional Investors (FIIs). <\/p>\n<p><script async src=\"\/\/pagead2.googlesyndication.com\/pagead\/js\/adsbygoogle.js\"><\/script><br \/>\n<!-- responsive --><br \/>\n<ins class=\"adsbygoogle\"\n     style=\"display:block\"\n     data-ad-client=\"ca-pub-6440093791992877\"\n     data-ad-slot=\"6406297397\"\n     data-ad-format=\"auto\"><\/ins><br \/>\n<script>\n(adsbygoogle = window.adsbygoogle || []).push({});\n<\/script> <\/p>\n<div class=\"journal2\"><a href=\"https:\/\/www.itatonline.org\/info\/cbdt-issues-faqs-on-taxation-of-ltcg-as-per-finance-bill-2018\/cbdt-faq-ltcg\/#dlcenter\" rel=\"attachment wp-att-10944\">Click here to download the FAQs dated 4th February 2018 issued by the CBDT<\/a><\/div>\n<div class=\"journal2\">See also: <a href=\"https:\/\/www.itatonline.org\/info\/cbdt-clarifies-law-on-grandfathering-clause-of-long-term-capital-gains-to-non-resident-and-fii-assessees\/\">CBDT Clarifies Law On \u2018Grandfathering\u2019 Clause Of Long-Term Capital Gains To Non-Resident And FII Assessees<\/a> and <a href=\"https:\/\/www.itatonline.org\/articles_new\/budget-2018-the-return-of-tax-regime-for-long-term-capital-gains-in-a-new-avatar\/\">Budget 2018: The return of tax regime for Long-Term Capital Gains in a new Avatar<\/a><\/div>\n<p>F.  No. 370149\/20\/2018-TPL <br \/>\nGovernment of India  <br \/>\nMinistry of Finance  <br \/>\nDepartment of Revenue  <br \/>\nCentral Board of Direct Taxes New Delhi,  <\/p>\n<p>Dated 4th   February, 2018  <\/p>\n<p><strong>Subject:  Frequently Asked Questions (FAQs) regarding taxation of long-term capital gains  proposed in Finance Bill, 2018-reg. <\/strong> <\/p>\n<p>Under the  existing regime, long term capital gains arising from transfer of long term  capital assets, being equity shares of a company or a unit of equity oriented  fund or a unit of business trust, is exempt from income-tax under clause (38)  of section 10 of the Act. However, transactions in such long-term capital  assets are liable to securities transaction tax (STT). Consequently, this  regime is inherently biased against manufacturing and has encouraged diversion  of investment to financial assets. It has also led to significant erosion in  the tax base resulting in revenue loss. The problem has been further compounded  by abusive use of tax arbitrage opportunities created by these exemptions. <\/p>\n<p>2. In order to  minimise economic distortions and curb erosion of tax base, it is proposed to  withdraw the exemption under clause (38) of section 10 and to introduce a new  section 112A in the Income-tax Act, 1961 (&lsquo;the Act&rsquo;) vide clause 31 of the  Finance Bill, 2018 so as to provide that long-term capital gains arising from  transfer of such long-term capital asset exceeding one lakh rupees will be  taxed at a concessional rate of 10 percent. <\/p>\n<p>3. Since the  introduction of the Finance Bill, 2018 on 1st February, 2018, several queries have been raised in  different fora on various issues relating to the proposed new tax regime for  taxation of long-term capital gains. The responses to these queries are  provided below. <\/p>\n<p><strong>Q 1. What  is the meaning of long term capital gains under the new tax regime for long  term capital gains? <\/strong> <\/p>\n<p>Ans 1. Long  term capital gains mean gains arising from the transfer of long-term capital  asset. The Finance Bill, 2018 proposes to provide for a new long-term capital  gains tax regime for the following assets&ndash; <\/p>\n<p>i. Equity Shares in a company listed on a recognised stock  exchange; <\/p>\n<p>ii. Unit of an equity oriented fund; and <\/p>\n<p>iii. Unit of a  business trust. <\/p>\n<p>The proposed  regime applies to the above assets, if&ndash; <\/p>\n<p>&nbsp;<\/p>\n<p>a. the assets are held for a minimum period of twelve months  from the date of acquisition; and <\/p>\n<p>b. the  Securities Transaction Tax (STT) is paid at the time of transfer. However, in  the case of equity shares acquired after 1.10.2004, STT is required to be paid  even at the time of acquisition (subject to notified exemptions). <\/p>\n<p><strong>Q 2. What  are the modes of acquisition of equity shares which are proposed to be exempted  from the condition of payment of STT? <\/strong> <\/p>\n<p>Ans 2. The  Central Government had exempted certain modes of acquisition of equity shares  for the purposes of clause (38) of section 10 of the Act vide notification no.  43\/2017 dated 5th of June, 2017. This notification is  proposed to be reiterated for the purposes of clause 31 of the Finance Bill,  2018 after its enactment. <\/p>\n<p><strong>Q 3. What  is the point of chargeability of the tax? <\/strong> <\/p>\n<p>Ans 3. The tax  will be levied only upon transfer of the long-term capital asset on or after 1st April, 2018, as defined in clause (47) of section 2 of the Act. <\/p>\n<p><strong>Q 4. What  is the method for calculation of long-term capital gains? <\/strong> <\/p>\n<p>Ans 4. The  long-term capital gains will be computed by deducting the cost of acquisition  from the full value of consideration on transfer of the long-term capital asset. <\/p>\n<p><strong>Q 5. How do  we determine the cost of acquisition for assets acquired on or before <\/strong><strong>31<\/strong><strong>st <\/strong><strong>January, 2018<\/strong><strong>? <\/strong> <\/p>\n<p>Ans 5. The  cost of acquisition for the long-term capital asset acquired on or before 31st of January, 2018 will be the actual cost. <\/p>\n<p>However, if  the actual cost is less than the fair market value of such asset as on 31st of January, 2018, the fair market value will be deemed to be  the cost of acquisition. <\/p>\n<p>Further, if  the full value of consideration on transfer is less than the fair market value,  then such full value of consideration or the actual cost, whichever is higher,  will be deemed to be the cost of acquisition. <\/p>\n<p><strong>Q 6. How  will the fair market value be determined? <\/strong> <\/p>\n<p>Ans 6. In case  of a <strong>listed equity share or unit<\/strong>, the fair market value means the  highest price of such share or unit quoted on a recognized stock exchange on 31st of January, 2018. <\/p>\n<p>However, if  there is no trading on 31st January,   2018, the  fair market value will be the highest price quoted on a date immediately  preceding 31st of January, 2018, on which it has  been traded. In the case of <strong>unlisted unit<\/strong>, the net asset value of such  unit on 31st of January, 2018 will be the fair  market value. <\/p>\n<p><strong>Q 7. Please  provide illustrations for computing long-term capital gains in different  scenarios, in the light of answers to questions 5 and 6. <\/strong> <\/p>\n<p>Ans 7. The  computation of long-term capital gains in different scenarios is illustrated as  under &#8211; <\/p>\n<p><strong>Scenario 1 <\/strong>&ndash; An equity share is acquired on 1st of January, 2017 at Rs. 100, its fair market value is Rs. 200  on 31st of January, 2018 and it is sold on 1st of April, 2018 at Rs. 250. <br \/>\n  As the actual  cost of acquisition is less than the fair market value as on 31st of January, 2018, the fair market value of Rs. 200 will be  taken as the cost of acquisition and the <strong>long-term capital gain will be Rs.  50 <\/strong>(Rs. 250 &ndash; Rs. 200). <\/p>\n<p><strong>Scenario 2 <\/strong>&ndash; An equity share is acquired on 1st of January, 2017 at Rs. 100, its fair market value is Rs. 200  on 31st of January, 2018 and it is sold on 1st of April, 2018 at Rs. 150. <br \/>\n  In this case,  the actual cost of acquisition is less than the fair market value as on 31st of January, 2018. However, the sale value is also less than  the fair market value as on 31st  of January, 2018.  Accordingly, the sale value of Rs. 150 will be taken as the cost of acquisition  and the <strong>long-term capital gain will be NIL <\/strong>(Rs. 150 &ndash; Rs. 150). <\/p>\n<p><strong>Scenario 3 <\/strong>&ndash; An equity share is acquired on 1st of January, 2017 at Rs. 100, its fair market value is Rs. 50  on 31st of January, 2018 and it is sold on 1st of April, 2018 at Rs. 150. <\/p>\n<p>In this case,  the fair market value as on 31st  of January, 2018 is less  than the actual cost of acquisition, and therefore, the actual cost of Rs. 100  will be taken as actual cost of acquisition and the <strong>long-term capital gain  will be Rs. 50 <\/strong>(Rs. 150 &ndash; Rs. 100). <\/p>\n<p><strong>Scenario 4 <\/strong>&ndash; An equity share is acquired on 1st of January, 2017 at Rs. 100, its fair market value is Rs. 200  on 31st of January, 2018 and it is sold on 1st of April, 2018 at Rs. 50. <br \/>\n  In this case,  the actual cost of acquisition is less than the fair market value as on 31st January, 2018. The sale value is less than the  fair market value as on 31st  of January, 2018 and  also the actual cost of acquisition. Therefore, the actual cost of Rs. 100 will  be taken as the cost of acquisition in this case. Hence, the <strong>long-term  capital loss will be Rs. 50 <\/strong>(Rs. 50 &ndash; Rs. 100) in this case. <strong> <\/strong><\/p>\n<p><strong>Q 8. Whether  the cost of acquisition will be inflation indexed? <\/strong> <\/p>\n<p>Ans 8.  Sub-clause (5) of clause 31 of the Finance Bill, 2018, <em>inter alia<\/em>,  provides that the long-term capital gain will be computed without giving effect  to the provisions of the second provisos of section 48. Accordingly, it is  clarified that the benefit of inflation indexation of the cost of acquisition  would not be available for computing long-term capital gains under the new tax  regime. <\/p>\n<p><strong>Q 9. What  is the date of commencement of the proposed new tax regime? <\/strong> <\/p>\n<p>Ans 9. The  proposed new tax regime will apply to transfer made on or after 1st April, 2018. The existing regime providing exemption under clause  (38) of section 10 of the Act will continue to be available for transfer made  on or before 31st March,   2018. <\/p>\n<p><strong>Q 10. What  will be the tax treatment of accrued gains upto <\/strong><strong>31<\/strong><strong>st <\/strong><strong>January 2018<\/strong><strong>? <\/strong> <\/p>\n<p>Ans 10. As the  fair market value on 31st January,   2018 will be  taken as cost of acquisition (except in some typical situations explained in  Ans 7.), the gains accrued upto 31st January,   2018 will  continue to be exempt. <\/p>\n<p><strong>Q 11. What  will be the tax treatment of transfer of share or unit between <\/strong><strong>1<\/strong><strong>st <\/strong><strong>February 2018<\/strong><strong> to <\/strong><strong>31<\/strong><strong>st <\/strong><strong>March 2018<\/strong><strong>? <\/strong> <\/p>\n<p>Ans 11. As  replied in answer 9, the new tax regime will be applicable to transfer made on  or after 1st April, 2018, the transfer made  between 1st February, 2018 and 31st March, 2018 will be eligible for exemption under clause (38)  of section 10 of the Act. <\/p>\n<p><strong>Q 12. What  will be the tax treatment of transfer made on or after <\/strong><strong>1<\/strong><strong>st <\/strong><strong>April 2018<\/strong><strong>? <\/strong> <\/p>\n<p>Ans 12. The  long-term capital gains exceeding Rs. 1 Lakh arising from transfer of these  asset made on after 1st April,   2018 will be  taxed at 10 per cent. However, there will be no tax on gains accrued upto 31st January, 2018 as explained in Ans 10. <\/p>\n<p><strong>Q13. What  is the date from which the holding period will be counted? <\/strong> <\/p>\n<p>Ans 13. The  holding period will be counted from the date of acquisition. <\/p>\n<p><strong>Q 14.  Whether tax will be deducted at source in case of gains by resident tax payer? <\/strong> <\/p>\n<p>Ans 14. No.  There will be no deduction of tax at source from the payment of long-term  capital gains to a resident tax payer. <\/p>\n<p><strong>Q 15.  Whether tax will be deducted at source in case of payment of long-term capital  gains by non-resident tax payer (other than a Foreign Institutional Investor)? <\/strong> <\/p>\n<p>Ans 15.  Ordinarily, under section 195 of the Act, tax is required to be deducted on  payments made to non-residents, at the rates prescribed in Part-II of the First  Schedule to the Finance Act. The rate of deduction in the case of capital gains  is also provided therein. In terms of the said provisions, tax at the rate of  10 per cent. will be deducted from payment of long-term capital gains to a  non-resident tax payer (other than a Foreign Institutional Investor). The  capital gains will be required to be computed in accordance with clause 31 of  the Finance Bill, 2018. <\/p>\n<p><strong>Q 16.  Whether tax will be deducted at source in case of payment of long-term capital  gains by Foreign Institutional Investors (FIIs)? <\/strong> <\/p>\n<p>Ans 16. No.  There will be no deduction of tax at source from payment of long-term capital  gains to a Foreign Institutional Investor in view of the provisions of  sub-section (2) of section 196D of the Act. <\/p>\n<p><strong>Q17. How  will the gains in the case of FIIs be determined? <\/strong> <\/p>\n<p>Ans 17. The  long-term capital gains in case of FIIs will be determined in the same manner  as explained in earlier answers in the case of resident tax payers. <\/p>\n<p><strong>Q 18. What  will be the treatment of the gains accrued upto <\/strong><strong>31<\/strong><strong>st <\/strong><strong>January 2018<\/strong><strong> in the case of FIIs? <\/strong> <\/p>\n<p>Ans 18. In  case of FIIs also, there will be no tax on gains accrued upto 31st January, 2018 as explained in Ans 10. <\/p>\n<p><strong>Q 19. What  will be the tax treatment of transfer of share or unit between <\/strong><strong>1<\/strong><strong>st <\/strong><strong>February 2018<\/strong><strong> to <\/strong><strong>31<\/strong><strong>st <\/strong><strong>March 2018<\/strong><strong> in the case of FIIs? <\/strong> <\/p>\n<p>Ans 19. As  explained in Ans 11, in case of FIIs also, the transfer made between 1st February, 2018 and 31st March, 2018 will be eligible for exemption under clause (38) of  section 10 of the Act. <\/p>\n<p><strong>Q 20. What  will be the tax treatment of transfer made on or after <\/strong><strong>1<\/strong><strong>st <\/strong><strong>April 2018<\/strong><strong> in case of FIIs? <\/strong> <\/p>\n<p>Ans 20. As  explained in Ans 12, in case of FIIs also, the long-term capital gains  exceeding Rs. 1 Lakh arising from transfer of these asset made on after 1st April, 2018 will be taxed at 10 per cent. However, there will be  no tax on gains accrued upto 31st January,   2018 as  explained in Ans 10. <\/p>\n<p><strong>Q21. What  will be the cost of acquisition in the case of bonus shares acquired before <\/strong><strong>1<\/strong><strong>st <\/strong><strong>February 2018<\/strong><strong>? <\/strong> <\/p>\n<p>Ans 21. The  cost of acquisition of bonus shares acquired before 31st January, 2018 will be determined as per sub-clause  (6) of clause 31 of the Finance Bill, 2018. Therefore, the fair market value of  the bonus shares as on 31st  January, 2018 will be  taken as cost of acquisition (except in some typical situations explained in  Ans 7), and hence, the gains accrued upto 31st January,  2018 will continue to be exempt. <\/p>\n<p><strong>Q 22. What will be the cost of acquisition in the case of  right share acquired before <\/strong><strong>1<\/strong><strong>st <\/strong><strong>February 2018<\/strong><strong>? <\/strong> <\/p>\n<p>Ans 22. The  cost of acquisition of right share acquired before 31st January, 2018 will be determined as per sub-clause  (6) of clause 31 of the Finance Bill, 2018. Therefore, the fair market value of  right share as on 31st January, 2018 will be taken as cost  of acquisition (except in some typical situations explained in Ans 7), and  hence, the gains accrued upto 31st  January, 2018 will  continue to be exempt. <\/p>\n<p><strong>Q 23. What  will be the treatment of long-term capital loss arising from transfer made  between <\/strong><strong>1<\/strong><strong>st <\/strong><strong>February, 2018<\/strong><strong> and <\/strong><strong>31<\/strong><strong>st <\/strong><strong>March, 2018<\/strong><strong>? <\/strong> <\/p>\n<p>Ans 23. As the  exemption from long-term capital gains under clause (38) of section 10 will be  available for transfer made between 1st February, 2018 and 31st March, 2018, the long-term capital loss arising during this  period will not be allowed to be set-off or carried forward. <\/p>\n<p><strong>Q 24. What  will be the treatment of long-term capital loss arising from transfer made on  or after <\/strong><strong>1<\/strong><strong>st <\/strong><strong>April, 2018<\/strong><strong>? <\/strong> <\/p>\n<p>Ans 24.  Long-term capital loss arising from transfer made on or after 1st April, 2018 will be allowed to be set-off and carried forward in  accordance with existing provisions of the Act. Therefore, it can be set-off  against any other long-term capital gains and unabsorbed loss can be carried  forward to subsequent eight years for set-off against long-term capital gains. <\/p>\n<p><strong>(Pravin  Rawal) <\/strong> <\/p>\n<p>Director (TPL-II) <br \/>\n  Tel. 011-23093765<\/p>\n","protected":false},"excerpt":{"rendered":"<p>The <a href=\"http:\/\/www.itatonline.org\/info\/download-finance-bill-2018\/\">Finance Bill 2018<\/a> has reintroduced the taxation of Long-term capital gains (LTCG) on stocks. The CBDT has issued a detailed FAQ dated 4th February 2018 in which it has addressed numerous questions relating to the method for calculation of long-term capital gains, the cost of acquisition, the fair market value, availability of inflation index, TDS obligations etc. The CBDT has also clarified the law applicable to capital gains earned by Foreign Institutional Investors (FIIs)<\/p>\n<div class=\"read-more\"><a href=\"https:\/\/itatonline.org\/info\/cbdt-issues-faqs-on-taxation-of-ltcg-as-per-finance-bill-2018\/\">Read more &#8250;<\/a><\/div>\n<p><!-- end of .read-more --><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[1,7],"tags":[],"class_list":["post-10943","post","type-post","status-publish","format-standard","hentry","category-all-information","category-others"],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/itatonline.org\/info\/wp-json\/wp\/v2\/posts\/10943","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/itatonline.org\/info\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/itatonline.org\/info\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/itatonline.org\/info\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/itatonline.org\/info\/wp-json\/wp\/v2\/comments?post=10943"}],"version-history":[{"count":0,"href":"https:\/\/itatonline.org\/info\/wp-json\/wp\/v2\/posts\/10943\/revisions"}],"wp:attachment":[{"href":"https:\/\/itatonline.org\/info\/wp-json\/wp\/v2\/media?parent=10943"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/itatonline.org\/info\/wp-json\/wp\/v2\/categories?post=10943"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/itatonline.org\/info\/wp-json\/wp\/v2\/tags?post=10943"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}