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Budget 2018: How To Compute Long Term Capital Gains Tax On Equity Mutual Funds

A simple computation technique for mutual fund investors.

If you make any withdrawals from equity mutual funds on or after April 1, 2018, capital gains tax will be payable as follows:

  1. Short-term capital gains tax @ 15% for holding period less than 1 year
  2. Long-term capital gains tax @ 10% for holding period more than 1 year, on gains more than Rs 1 lakh.

This tax is not deducted by mutual funds. You will receive the full withdrawal amount and will need to calculate and pay the tax yourself on the advance tax milestones or while filing your annual return.

Please note that withdrawals up to March 31, 2018, continue to be exempt from long-term capital gains.

Here is a set of rules for you to make sense of this:

  1. For each withdrawal, figure out whether the holding period was less than 1 year (short-term) or more than 1 year (long-term).
  2. Separately list your short term withdrawals and long-term withdrawals.
  3. Calculate taxes on short-term gains (or losses)
    - For each withdrawal, subtract the original purchase price from the sale price.
    - Sum up all the gains and losses from your short-term withdrawals.
    - Short-term capital gains tax @ 15 % is payable on the net short-term gains
  4. Calculate taxes on long-term withdrawals.
    - This only applies to withdrawals made on or after April 1, 2018.
    - For each withdrawal, find out the value of your holding on January 31, 2018
    - Find out whether the original purchase price is higher than this value
    - Whichever is higher is considered as the purchase price
    - Subtract this from your sale price
    - Repeat this for all your long-term withdrawals
    - Sum up the gains (or losses) for all your long-term withdrawals
    - Subtract 1 lakh from this total amount of long-term gain
    - If you get a positive amount, long-term capital gains tax @10% is payable on this amount.
Note: For Scripbox investors, these calculations will be included in the statement of realised capital gains that we provide.
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