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How unfair is LTCG?

The grandfathering clause shields your past gains

How unfair is LTCG?

I've been a long-term investor in equity-oriented funds and am sitting on big gains on my portfolio. Will I have to pay tax on all those gains when I sell them? That's unfair, I bought my funds thinking they're tax-free!
No, there is a grandfathering clause to shield your past gains until January 31, 2018, from the new LTCG tax. Therefore, if you have substantial gains on your equity funds, you will pay LTCG tax only on that portion of profits made after January 31. This will apply only to LTCG of over Rs 1 lakh a year and that too only when you sell your funds.

So, if you bought into a fund at an NAV of Rs 100, it traded at Rs 250 on January 31, 2018, and rises further to Rs 300 by April 2 and you decide to sell it on that day, your long-term gains will be taken as only Rs 50 per unit for tax purposes, and not Rs 200.

But what if the market continues to tank big-time like this and I make capital losses when I sell some of these funds?
The grandfathering clause allows you to report capital losses in such cases. But the quantum of losses is subject to new rules. The new section says that the cost of acquisition for calculating LTCG will be the higher of your actual acquisition price and the lower of a) the fund's fair market value or b) its actual sale price. 'Fair market value' here refers to the fund's NAV as on January 31, 2018.

One silver lining is that with effect from April 1, long-term investors in equity funds can also carry forward any capital loss that they book in equity funds for eight subsequent years. This loss can then be set off from the LTCG on any asset in those eight years, thus reducing their tax liability. So far, set-off and carry-forward provisions were not available to equity and equity-fund investors.

Don't worry about double taxation!