LTCG @ 10% Budget 2018 FY19

(Yogesh Sane) #61

According to this article, if an investor sells before 31 March, there will not be any LTCG tax. That will result in some selling pressure on stocks over the next 2 months, especially last 2 weeks of March. However tax savings should be marginal.

(sandeep17) #62

Yes, the finance bill comes into effect on April 1 so we have a tricky little phase to cross over between now and March 31. There is an arbitrage opportunity which can be exploited by large operators.

(madhavikkutti) #63

That’s true, but I don’t think the selling can impact the prices of the stocks in any major way, as the seller might be looking at buying the same stock back again the next day. One who would really be benefited by this selling/ buying process, I think is the stock broking companies (and of course the Government, through STT) :slight_smile:

(khushi) #64

It is 4%of 10% so it happens 10.04%

(s) #65

It will be sheer useless effort to sell and buy if your buy price is grandfathered to 31st January 2018 … unless you can predict the market swings.

(Kumar Saurabh) #66

Ditto same feeling. True for those who put part of their portfolio on mispriced bets purely on basic business understanding + safe valuations.

(sandeep17) #67

Well, i think the rules of the game will change a bit moving forward. Do also remember that this 10% tax is without any indexation benefit. Almost the entire investor community ( and especially the large ones ) will have to re-calibrate their investing approach. And for the average small investor, i believe the case is now stronger to go the mutual fund route.


I am of the opinion , this taxation will trigger the biggest bull run which we are yet to see …why?

by bridging the gap in taxation stcg vs ltcg, a very large community of semi investors will get activated to change into tarders…
As a result we will see trading volumes will shoot up , this is not only intra day trades but also, btst and positional or swing trading, so percentage delivery will not always give the true picture but the average volumes in liquid counters will be an index to track this…
As we know , volume is directly proportional to price action, there is going to be a good directional movement…

In the short term we may see a lotnof correction amid this ltcg confusion and distrust with the gov policies, things are going to settle and we are going to see a stupendous 2018… Just like we saw post demonitization, what liquidity did to the markets…

But what will be interesting to see the effects of volumes in illequid counters and diluted stocks…
Bls international and sintex plastics as examples of these two scenario

Hitesh portfolio
(rskothari) #69

I think it makes sense to sell before March 31 to avoid LTCG only if price is more than 31st Jan Price. So gain between 31st Jan and the date of sale before March 31 shall be tax free if the holding is for more than one year. Otherwise, if sold after March 31, gain between 31st Jan and March 31 shall be taxable.

(pkk123) #70

Ha ha. As if there will be gains in this period.

(vpbalu) #71

It is probable and not a Black swan event. If you look at today’s huge correction across all ’ Caps’ how much do you think is only due to a disappointing budget and not due to the results in By elections. Though the national media is completely silent on the bypoll results and behave as though it is a non event, market participants do see what is happening.

(chetanb) #72

Income tax guys treat your trading income as business income if there is too much of trading and slap 30% tax instead of capital gains tax. Be wary of increasing your trading volume.

(manivannan.g) #73

Is one has to pay 10% of LTCG, no matter which income tax slab he is in ? or the tax slabs are taken into consideration ? Pls help to understand this. Also, pointing to a right page/article would be great.

(pkk123) #74

‘Too much trading’ rule was ambiguous and has since been clarified about. It is upto an individual investor to declare themselves as a trader or investor but once chosen, the classification cannot be changed in subsequent years.

(Jaclyn) #75

Another sensible article by Dhirendra Kumar.

  1. It can nudge a investor to move to MF to avoid the hassle of any capital gains when he rotates among the shares. This is important if the returns you are generating is average.

  2. Since you have the 1 lakh yearly limit, you can do a buy and sell within MF itself and save Rs.10,000 at max, provided you are direct investor. Otherwise you may pay the distributor for the churn.

(pkk123) #76

I am not sure he is completely right. For ex. “The trading is done inside the fund’s portfolio by the fund manager. However, as long as the investor holds on to the fund, there is no taxable event.”

There is no taxable event for the investor but the fund manager will have to pay 10% LTCG if he sells a stock EVER. This will reflect in NAVs sooner or later.

Edit: Thinking further on this, may be he is right because doing this will cause double taxation. If fund manager pays 10% LTCG and then investor again pays 10% that does not make sense. Can someone clarify?

(Left this forum) #77

I was just reading few posts here, couldn’t stop myself from expressing out certain things which looks like a loop. First the article here is hilarious to say the least. When he couldn’t justify higher tax in percentage turned to subjective.

  • Don’t buy and sell frequently, chose all weather stocks. If you hold long your return will be huge, what a conclusion. My return depends on my engagement with market not long, short, tall, fat etc. If you have stories have multi bagger then you have multi draggers also.
  • Invest through MF, why? Trading is done by fund manager inside fund. Aha, right now you said no selling/buying; then why trading? Because I hold I won’t pay taxes. The tax paid by fund manager on trading will be paid out of pocket and get added to NAV. Bravo!

I am really puzzled how an income tax becomes a criteria for decision making for investment. Any application of income is taxable, all governments are empowered to tax through Income Tax act. Good or bad, excess tax is another debate. Agree, higher tax takes out certain return percentage and ultimately your cash flow. Even increased GST will knock off your cash flow, do you spend sleepless nights for buying petrol if indirect tax is increased every time?

But there won’t be tax if there is no income. And your income depends on investment methodology and engagement with market. Where is tax as factor help in getting income? Are you including personal tax into investment document? At best it’s an item of personal financial planning. To me it’s simple, if you earn pay taxes as allowed by statute. I have 2 ways to pay taxes on share gains- either business income or capital gains. First is tax paid on NET INCOME (minus expenses allowed, marginal rate as per slab) and second on GROSS INCOME (flat structure, expenses not allowed). Play around with which is suitable subject to allowed regulations.

Other solution moves to another asset class with favourable tax treatment. But this is only applicable if you are good at both or multiple asset class. It’s the knowledge of asset class delivers returns not income tax. Or chose asset class which is risk free without any knowledge requirement which has a favourable tax treatment (I don’t’ know of any, fixed instruments are taxed at marginal slab rate.)

Let me raise an awkward question here. If income tax rates for individual (e.g. salary) increased to 60% will you stop working and open a restaurant as business income is taxed lower say 30%? Or you will find a way out to increase your income, be it bonus or something else.

I know I am bit isolated here with fractals (overlapped ideas of combined people). This remind me today morning conversation with someone. He shorted dozens Nifty contracts last week, I said why boss (aisa kya hogaya?). He said you don’t know HIGHER NUMBERS (NOT AMOUNT WISE) invest due to tax gains, any negative news will have distribution and serious! Bears will do will to take more plunge via television, newspapers by painting doom and gloom has arrived. The sell off could have happened due to many other factors as well!

Personal views, counter arguments are welcome.

Disclaimer- I am still not short on Nifty.

(Left this forum) #78

by bridging the gap in taxation stcg vs ltcg, a very large community of semi investors will get activated to change into tarders…
As a result we will see trading volumes will shoot up , this is not only intra day trades but also, btst and positional or swing trading, so percentage delivery will not always give the true picture but the average volumes in liquid counters will be an index to track this…
As we know , volume is directly proportional to price action, there is going to be a good directional movement…

Intellectual perspective, with transaction costs coming down volume may increase substantially after reduced effect of taxes. Coupled with good liquidity (?) and changing fundamentals it may actually support the rally further.

(Jaclyn) #79

The current budget document doesn’t provide an answer to your question. Most probably it is not. Subsequent clarifications in the coming days is only going to answer it.

(Raj A A) #80

Dividend is taxed only for Equity Mutual funds , Not Equity investment .Pls see the news item in Today’s ET.
End of the Road for Dividend Play by Mutual Fund Houses
10% dividend tax brings systematic withdrawal plans back into favour
[email protected]

Mumbai: The introduction of a 10% tax on income distributed by equity funds will pinch investors used to earning tax-free dividend. However, systematic withdrawal plans may be a suitable alternative.

Many fund houses had pushed the dividend option of equity-oriented balanced funds to investors as a safe way of earning assured monthly income.

This nudge to rely on dividend income put investors on the wrong path, experts said. The worry was that such dividend payments would be unsustainable if market conditions soured, leaving investors in a tight spot. However, with the introduction of the tax, funds are unlikely to resort to such gimmicks anymore.

“This will put an end to the blatant mis-selling as these products were not being sold for the purpose for which they were created,” said Vidya Bala, head of mutual fund research at FundsIndia.

Apart from balanced funds, the tax on dividend will also affect arbitrage funds, which had already started generating lower income.

Experts said the systematic withdrawal plan (SWP) route now becomes more relevant for earning regular income from equity funds. Initiating an SWP after a year of purchasing the fund will allow investors to earn a guaranteed monthly income.

Besides, a small investor may be able to avoid tax altogether if the long-term capital gains accrued on the amount withdrawn under SWP is less than the ₹1 lakh threshold.

“SWP is a superior option than dividend, even without the tax levy on the latter,” said Swarup Mohanty, CEO of Mirae Asset Global Investments (India).