Previously, the long-term capital gains (LTCG) made on sale of equity shares and Equity Mutual Funds were completely tax-free in your hands.
However, the amendment made in the union budget 2018 has changed the tax treatment of LTCG on sale of listed equity shares and equity funds.
Beginning from 1 April 2018, LTCG made in excess of Rs 1 lakh will be taxed at the rate of 10%
The key point is gains made in excess of Rs 1 lakh.
How can you take benefit of this 1 lakh limit?
Investment Amt – 1 lakh
Purchase Price (NAV) – Rs. 50
Units allotted – 2000 units
After 1 year
Suppose NAV has increased to Rs. 60
Current Value – 60 * 2000 = 1.2 lakh
Profit – 20k (Current Value – Purchase Price)
Sell this fund and again reinvest this money.
This way the profit of 20k is tax free.
Discipline is critical. If you redeem but don’t reinvest, the purpose of long term investing is defeated.
Last day to utilize this benefit of Rs. 1 lakh is Friday, 29 March 2019, please let me know if you have any queries.