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Don't Sell Shares or Mutual Fund in Loss-Wait Till 31 March to Save LTCG

If you are incurring a long term capital loss on selling shares or equity mutual fund units then it may be better to sell after 31.3.2018 as then you would be able to set them off against any LTCG which you may get as LTCG will become taxable after this date. While you should sell equity and equity MF units before March 31, 2018 to get tax-exempt long term capital gains you should sell after this date if you are going to incur long term capital losses (LTCL). Going by the rules of the new long long term capital gains (LTCG) regime introduced in Budget 2018 and the FAQs released by the income tax department, you would be able to book LTCL for setting off against LTCG on equity and equity MF units and carry forward only after 31.3.2018. Currently and till 31.3.2018, long term capital losses were not allowed to be set off or carried forward on sale of listed equity shares and equity MF units as the capital gains from these were tax exempt. As per income tax law, capital losses cannot be derived or set off from exempt income. 

However, after 31.3.2018, LTCG on the above instruments will no longer be tax exempt therefore any LTCL booked on sale of these after this date can be used to reduce the LTCG, says Sonu Iyer, direct tax partner, EY India. You would also be able to carry forward these losses for setting off in later years up to 8 assessment years. Therefore, in case the price of the shares or the NAV of the equity MF units you want to sell are such that you would incur a loss on selling them, then it may be better to sell them after 31.3.2018 rather than before so that you can use the LTCL so generated to reduce any LTCG that you may have in FY 2018-19, she explains. 

Reduction in LTCG would mean that you would not have to pay capital gains tax on the amount by which the LTCG has been reduced. 

Says Divya Baweja, partner, Deloitte India: "If sale of any listed equity share or equity mutual fund unit is likely to result  in a long term capital loss then it would be beneficial to sell after 31.3.2018 because it would then be possible to set off such LTCL against any LTCG. It would also be possible to carry forward such unabsorbed LTCL for future set-off against LTCG for next 8 years subject to the provisions of the law " 

Iyer further clarifies that brought forward long term capital losses incurred on debt mutual fund units from previous years would be allowed to be set off against LTCG on listed equity or equity MF units after 31.3.2018. This too would allow you to save on the new LTCG tax. 

Budget 2018 proposes to change how long term capital gains (LTCG) on equity shares and units of equity oriented mutual funds are taxed in your (an individual's) hands. Currently, LTCG on equity shares and equity oriented mutual fund units were exempt from tax in an individual's hands. Budget 2018 proposes to levy a 10% tax plus cess on these gains. However, there are two escape windows and one mitigating factor.

Here's how the new long term capital gains tax regime will work for individuals selling equity or equity MF units or units of business trust 

Escape window 1: If you sell your equity or equity MF units (held for more than one year) before 31.3.2018, you can still claim tax exemption on long term capital gains from these. The new tax regime for LTCG is effective for transactions done from April 1, 2018, says Pinky Khanna, Tax Director, EY. 

 Escape window 2: LTCG on these instruments realised after 31.3.2018 by an individual will remain tax exempt up to Rs 1 lakh per annum i.e. the new LTCG tax of 10% would be levied only on LTCG of an individual exceeding Rs 1 lakh in one fiscal. For example, if your LTCG is Rs 1,30,000 in FY2018-19 from these two instruments then only Rs 30,000 will face the new LTCG tax, she explains. 

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