LTCG and other changes in Mutual Fund taxation in Budget 2018


Taxation of Long Term Capital Gains (LTCG) in stocks and Equity Mutual Funds (including Tax Saver ELSS Funds and Arbitrage Funds) is back with the new budget and will be charged at 10% of gains exceeding Rs 1 lakh for the assessment year.

Dividend distributed by Equity Mutual Funds in their dividend payout and dividend reinvestment options will also be taxed (DDT) at 10%. Earlier the dividends were also tax free.

The new LTCG and DDT taxation will be applicable from 1st Feb 2018 1st April 2018 (assessment year 2019-20) onwards i.e. on investments sold on or after 1st April 2018 (and not on sales made till 31st March 2018).

For existing investments sold on or after 1st April 2018, LTCG upto 31st Jan 2018 will continue to be tax-free and only the gains after 31st Jan 2018 will be considered under the new tax policy (so there is no need to sell any of your long term holdings).

Here is a table summarising the new taxation of Mutual Funds:

To help you understand the computation of LTCG tax and the effect of grandfathering of gains till 31st Jan 2018, here are some example scenarios.

We will be updating this post as we get more details regarding the new taxation rules.

Ref:
Provisions related to Direct Taxes, Finance Bill, 2018 (PDF) FAQ on LTCG by Income Tax Dept (PDF)