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?Asked
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.
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-
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.