Should I withdraw my savings from a mutual fund as the government decides 10% tax on the benefits in a new budget?

After the new LTCG tax, is it better to take my money out of mutual funds? If the returns for my fund are 20%, then will i get only 10% after paying tax?

Pijush Kanti Biswas

No, it is not advisable to withdraw your savings from a mutual fund due to government new LTCG tax of 10%.

The impact new LTCG is not that huge or bad because of provision which allows the cost of acquisition to be taken as the market value on 31st January 2018, if it is higher than purchase cost. This reduces the amount of capital gains that would face the 10% tax. Essentially for a person selling after 31st March, 2018, only the actual gains after 31st January, 2018 would be taxed.

However, obviously a 10% tax has been levied on the capital gains which was not there earlier, so will definitely hurt the equity oriented investors. But our stock exchange has become matured enough over the last couple of years, to attract the foreign and retail investors.

Check the sample calculation of LTCG tax calculation :

If you bought a share for ₹ 1,000 and have held it for more than 1 year and say FMV of the asset on 31.01.2018 is ₹ 1,300 and you sell it for ₹ 1,500 on 1-April-2018 then the LTCG is calculate as follows:

Cost of acquisition of this share (purchased before 01-Feb-2018) = Higher of Cost of actual Purchase and FMV.

The actual purchase price = ₹1,000 and FMV as on 31-Jan-2018 = ₹ 1,300

So, cost acquisition for LTCG purpose is ₹ 1,300

Hence, LTCG = Selling Price - Cost of acquisition

= ₹ 1,500 - ₹ 1,300 = ₹ 200

You would (for tax purposes) have realised LTCG ₹ 200.

Also, this tax is applicable only if LTCG is above ₹ 1 lakh in a financial year. So, if an investor made long-term gains of ₹ 1,20,000 in a year, LTCG tax is applicable only for ₹ 20,000 i.e. ₹ 1,20,000 - ₹ 1,00,000.

In addition, compared to returns from fixed deposits and debt related funds, equity related mutual fund gives better return even after applying new LTCG tax.

Happy Investing!

Mridul Agrawal

No. It is not suggested to withdraw savings from mutual fund on account of the 10% long-term capital gains tax imposed on gain from sale of equity funds, over the period of one year.

Calculation of long-term capital gains on sale of ELSS fund/ equity fund shall be applicable as follows-

  • A person who sells shares after April 1, 2018 shall be required to pay a long-term capital gains tax at the rate of 10 percent on gains of more than ₹ 1 lakh. For such shares, the notional cost of acquisition will be price on Jan. 31, 2018.
  • If a person who has held shares for more than one year sells them before March 31, 2018, there will be no long-term capital gains tax.
  • A person who sells shares after April 1, 2018, at a loss, the cost of acquisition for such shares would be the price on the actual date of acquisition and not the notional cost on Jan. 31, 2018.

For example,

Purchase Price- ₹100

Highest price as on 31/01/2018- ₹125

Selling price- ₹140

Case 1: When shares sold before 31.1.18


Case 2: When shares purchased before 31.1.2018 and sold after 31.3.2018

Total LTCG- ₹40

Exempt LTCG- ₹25

Taxable LTCG- ₹15 @ 10%= 1.5

Moreover, compared to returns from other investment classes such as FD, Debt funds among others, equity and mutual funds still provide a better comparative return (even after 10% LTCG on gains over ₹100,000.

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