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I bought Nippon India Tax Saver Fund (ELSS) dividend payout on January 13, 2015, at an NAV of ₹24.0624 and redeemed it on October 10, 2020, at an NAV of ₹15.3412. The NAV of the scheme on January 31, 2018, was ₹24.9089. Please help me calculate the long-term capital gains/loss (LTCG/LTCL). Thank you.
C Visalakshi
Until March 2018, long-term capital gains (LTCG) on listed equity shares and equity mutual funds were exempt from tax.
So, if you sold these shares and equity mutual fund units after holding them for more than 12 months from the date of acquisition, the gains were considered long-term and no tax was levied.
Gains on equity shares and equity mutual funds held for 12 months or less (short-term capital gains) were taxed at a concessional rate of 15 per cent.
But from April 2018, the tax treatment has changed. From fiscal 2018-19, LTCG arising from transfer of such equity shares and equity mutual funds exceeding ₹1 lakh a year will be taxed at 10 per cent. Short-term gains continue to be taxed at 15 per cent.
Investors have been given another concession — the ‘grandfathering’ clause on LTCG — to soften the tax blow.
On sales from April 1, 2018, LTCG on listed equity shares and equity mutual funds up to January 31, 2018, will be grandfathered, that is, they will continue to be exempt from tax, and only LTCG made after January 31, 2018, will be taxed.
This concession is enabled by the formula to determine the cost of acquisition — higher of a) actual cost and b) lower of i) fair market value on January 31, 2018 ii) selling price. The fair market value on January 31, 2018, is the highest intra-day traded price for listed equity shares, and the net asset value (NAV) of mutual funds on that day.
Once the LTCG is determined, gains in excess of ₹1 lakh a year will be taxed at 10 per cent. Surcharge on tax, depending on the income level, and cess at 4 per cent (3 per cent earlier) on tax-plus-surcharge will also apply.
Indexation of cost of acquisition that factors inflation over the holding period of the investment, is not allowed in the case of LTCG tax on equity shares and equity mutual funds. The grandfathering benefit is available only on sale of equity shares and equity funds bought up to January 31, 2018.
Long-term capital loss (LTCL) arising on sale of listed equity and equity mutual funds made on or after April 1, 2018, can be set off and carried forward for eight years as per the tax rules.
Equity-oriented funds are those that invest above 65 per cent of their corpus in the equity shares of domestic Indian companies. This category includes equity funds across market capitalisations, equity-linked savings schemes (ELSS), hybrid equity-oriented funds and arbitrage funds.
Based on the above, the LTCG/LTCL on your ELSS fund — an equity-oriented fund — is as follows. One, the gains on the units sold will be long-term in nature, since you have held them for more than 12 months; they will have the benefit of grandfathering of gains up to January 31, 2018.
The sale price (redemption price) per unit is ₹15.3412. The cost of acquisition per unit is ₹24.0624.
The cost of acquisition is computed as higher of a) and b) where a) is actual cost (24.0624) and b) is lower of fair market value on January 31, 2018 (24.9089 ) and selling price (15.3412).
So, in this case, there is LTCL of ₹8.7212 per unit, computed as sale price (15.3412) minus cost of acquisition (24.0624).
Since the LTCL is incurred on sale of equity mutual funds made on or after April 1, 2018, it can be set off and carried forward for eight years as per the tax rules.