Capital Gain Tax FAQ

Q1 - What is Capital Gain?

If you sell an asset such as bonds, shares, mutual fund units, property etc., you must pay tax on the profit earned from it. This profit is called Capital Gains and the tax paid on this capital gains is called Capital Gains tax. Conversely, if you make a loss on sale of assets, you incur a capital loss.

For more details, you can consult your Tax Consultant or Chartered Accountant.

Q2 - What is Short Term gain? How is it calculated?

As per the Capital Gains module, if you sell Bonds except Infrastructure bonds notified within 12 months from the date of purchase, the gains made are calculated as Short Term Capital Gain. For notified Infrastructured bonds the minimum period is 36 months.

Short Term Capita l Gain (STT Not paid / NA): - STT is not applicable for NCD/Bonds hence computation in this segment will be made for all short term sell transactions.

Q3 - What is Long Term gain? How is it calculated?

As per the Capital Gains module, if you sell Bonds/ Security after 12 months (for Infrastructure bonds its 36 months) from the date of purchase, the gains made are calculated as Long Term Capital Gain. Budget 2018 proposes to levy Tax on Long Term Capital Gain only on Equity Shares and Units of Equity Oriented Mutual Funds. However, LTCG up to Rs.1 lakh in a financial year shall be exempt.

Long Term Capita l Gain (STT not paid / NA): - Computation in this segment will be made for all long term sell transactions as defined above.

Q4 - What is Grandfathering clause?

Finance Minister in his budget 2018 proposed grandfathering of Long Term Capital Gains up to Jan 31, 2018 and following are the details:

1. Long Term Holding would not attract any tax if sold on or before March 31, 2018
2. Cost of Acquisition of Equity share would be considered to be higher of the actual cost or the Fair Market Value of it as on January 31, 2018.
3. However, to avoid an arbitrary loss situation, if the Actual Sale Consideration is lower than the Fair Market Value as on January 31, 2018, the Cost of Acquisition would be either the Actual Sale Price or Actual Cost, whichever is higher.

Fair Market Value (FMV) means the highest price of share on a recognized stock exchange. If there was no trading in the particular stock on 31 January 2018, FMV will be the highest price quoted on the date immediately preceding January 31 2018, on which it was traded.

Q5 - Examples of Long Term Capital Gain Calculations

Scenario 1: Stocks sold wherein FMV is more than purchase value:

Bought Share for Rs.100/- on Jan 01, 2017 and sold on Apr 01, 2018 for Rs.200/-. FMV for the share on Jan 31, 2018 was Rs.150/- then the LTCG is calculate as follows:

Scenario -1	Pre-budget	Post-budget
Purchase Price on Jan 01, 2017	100	100
Sale Price on April 01, 2018	200	200
Price on Jan 31, 2018 (FMV)	150	150
No. of Shares	1	1
Computation of LTCG
Sale Value	200	200
(-) Purchase Value Considered	100	150
Capital Gains/Loss	100	50

As Purchase Value is less than the FMV, FMV of Rs.150/- will be taken as Purchase Value Considered and Long Term Capital Gain will be Rs.50 (Rs.200 – Rs.150).

Scenario 2: Stocks sold wherein FMV is less than purchase value:

Bought Share for Rs.100/- on Jan 01, 2017 and sold on Apr 01, 2018 for Rs.200/-. FMV for the share on Jan 31, 2018 was Rs.50/- then the LTCG is calculate as follows:

Scenario -2	Pre-budget	Post-budget
Purchase Price on Jan 01, 2017	100	100
Sale Price on April 01, 2018	150	150
Price on Jan 31, 2018 (FMV)	50	50
No. of Shares	1	1
Computation of LTCG
Sale Value	150	150
(-) Purchase Value Considered	100	100
Capital Gains/Loss	100	100

In this case, the FMV is less than the actual Purchase Price, hence actual cost of Rs.100/- will be taken as actual Purchase Price and the Long Term Capital Gain will be Rs.50 (Rs.150 – Rs.100).

Scenario 3: Stocks sold wherein Sell Value is less than FMV but more than Purchase Value:

Bought Share for Rs.100/- on Jan 01, 2017 and sold on Apr 01, 2018 for Rs.200/-. FMV for the share on Jan 31, 2018 was Rs.250/- then the LTCG is calculate as follows:

Scenario -3	Pre-budget	Post-budget
Purchase Price on Jan 01, 2017	100	100
Sale Price on April 01, 2018	150	150
Price on Jan 31, 2018 (FMV)	200	200
No. of Shares	1	1
Computation of LTCG
Sale Value	150	150
(-) Purchase Value Considered	100	150
Capital Gains/Loss	100	0

In this case, the actual Purchase Price is less than FMV. However, the Sale Value is also less than FMV. Hence, the Sale Value of Rs.150/- will be taken as the Purchase Price and the Long Term Capital Gain will be NIL (Rs.150 – Rs.150).

Scenario 4: Stocks sold wherein Sell value is less than FMV and however Purchase Value is less than FMV:

Bought Share for Rs.100/- on Jan 01, 2017 and sold on Apr 01, 2018 for Rs.50/-. FMV for the share on Jan 31, 2018 was Rs.200/- then the LTCG is calculate as follows:

Scenario -4	Pre-budget	Post-budget
Purchase Price on Jan 01, 2017	100	100
Sale Price on April 01, 2018	50	50
Price on Jan 31, 2018 (FMV)	200	200
No. of Shares	1	1
Computation of LTCG
Sale Value	50	50
(-) Purchase Value Considered	100	100
Capital Gains/Loss	-50	-50

In this case, the actual Purchase Price is less than FMV. The Sale Value is less than the FMV and also the actual Purchase Price. Therefore, the actual cost of Rs.100 will be taken as the cost of acquisition in this case. Hence, the Long Term Capital Loss will be Rs.50 (Rs.50 – Rs.100).

Scenario 5: Stocks sold wherein Sell value is less than FMV, however Purchase Value is higher than FMV:

Bought Share for Rs.200/- on Jan 01, 2017 and sold on Apr 01, 2018 for Rs.50/-. FMV for the share on Jan 31, 2018 was Rs.100/- then the LTCG is calculate as follows:

Scenario -5	Pre-budget	Post-budget
Purchase Price on Jan 01, 2017	200	200
Sale Price on April 01, 2018	50	50
Price on Jan 31, 2018 (FMV)	100	100
No. of Shares	1	1
Computation of LTCG
Sale Value	50	50
(-) Purchase Value Considered	200	200
Capital Gains/Loss	-150	-150

In this case, the actual Purchase Price is more than FMV. The Sale Value is less than Purchase Price and FMV. Therefore, the actual cost of Rs.200/- will be taken as Purchase Price. Hence, the Long Term Capital Loss will be Rs.150 (Rs.50 – Rs.200) in this case.

Scenario 6: Stocks sold wherein Sell Value is higher than FMV, however Purchase Price is higher than Sell Value:

Bought Share for Rs.200/- on Jan 01, 2017 and sold on Apr 01, 2018 for Rs.150/-. FMV for the share on Jan 31, 2018 was Rs.100/- then the LTCG is calculate as follows:

Scenario -6	Pre-budget	Post-budget
Purchase Price on Jan 01, 2017	200	200
Sale Price on April 01, 2018	150	150
Price on Jan 31, 2018 (FMV)	100	100
No. of Shares	1	1
Computation of LTCG
Sale Value	150	150
(-) Purchase Value Considered	200	200
Capital Gains/Loss	-50	-50

In this case, the FMV is less than the actual Purchase Price. The Sale Value is less than the actual Purchase Price but higher than FMV. Therefore, the actual cost of Rs.200 will be taken as Purchase Price in this case. Hence, the long-term capital loss will be Rs.50 (Rs.50 – Rs.200) in this case.

Q6 - What is Speculation Income?

As per the Capital Gains module, any gain or loss from Bond/Security transactions where the purchase and sale has happened on the same day is reflected under the Speculative Income. Please note that the calculations are done purely on the basis of data reflecting in the portfolio.

All calculations are done on First In First Out (FIFO) basis.

Q7 - I find two Investor Type, What do I select?

The default profile is defined as per the declaration given by you while opening an I-direct account or operating your I-Direct account on time to time basis. Please contact your Tax Consultant or Chartered Accountant for clarification about your profile.

Q8 -How do I check if all the trades are updated in portfolio?

All trades done through our site www.icicidirect.com are automatically updated in the portfolio. However, to make confirm that the trades for the financial year are updated, please visit the FD/Bonds Trade Book and ensure that the check box against all the trade is not editable and the "Update Portfolio" button is disabled. This ensures that all the transactions from Trade Book are updated in the Portfolio.

Q9 - How do I update / add transaction to portfolio?

To manually update / add a transaction to portfolio, kindly follow the below mentioned steps:

1. Login to your ICICIdirect.com account.
2. Visit the Portfolio section of FD/Bonds.
3. Click on the button "Add transaction to portfolio".
4. Fill up all the details which appear on the next screen and submit.

The transaction would then reflect in your portfolio segment. To view all transactions done in particular Bond/Security, click on the Security name and you will find all transactions done through site and also the transactions which were updated manually, if any.

Q10 - I have negative holding in my portfolio, what do I do?

All trades done through our site www.icicidirect.com are automatically updated in the portfolio. The portfolio is would show negative holdings if the entry in portfolio is for Bond/Security sold in excess to the Bonds bought. There could be a number of reasons for the portfolio showing negative holdings.

Q11 - What is Indexation? Who is eligible for Indexation benefit?

Income Tax laws have a provision of reducing the effective tax burden on long term capital gains that you earn. This provision allows you to increase the purchase price of the asset that you have sold. This helps to reduce the net taxable profit allowing you to pay lower capital gains tax. The idea behind this is inflation - since we know inflation reduces asset value over a period of time. This benefit provided by Income Tax laws is called "Indexation". Only all Govt notified zero coupon bonds are eligible for Indexation benefit.

However, after the Budget 2018 proposed to levy Tax on Long Term Capital Gain Cost Inflation Index numbers will be used to calculate Indexation only for those assets wherein inflation adjustment is allowed. Therefore, any Long Term Capital Gain arising from Equity Shares and Equity Oriented Mutual Funds will not be eligible for this benefit.

To calculate your Indexed Cost, please find the index value from the following table (revised in budget 2017 wherein base year has been changed from 1981 to 2001):

To know how can you avail indexation benefit, you can consult your Tax Consultant or Chartered Accountant.

To know how can you avail indexation benefit, you can consult your Tax Consultant or Chartered Accountant.