• Before Amendment:

Earlier, Long term Capital Gain (LTCG) on equity shares was exempted u/s 10(38) without any limit.

• After Amendment made by The Finance Act, 2018

The above tax exemption has now been removed by The Finance Act, 2018 by introducing a new Section 112A with 10% tax on LTCG in excess of Rs.1 Lakh on sale of listed equity or equity-related instruments (STT paid).

To provide relief, The Finance Act, 2018 also introduced the grandfathering provision¹ to exempt long-term capital gains earned until 31 January 2018. This only means that the income tax will not be implied with retrospective effect, but with prospective effect (i.e. w.e.f. 1^st Feb 2018).

1 Grandfather clause/grandfather policy/grandfathering is a provision in which an old rule continues to apply to some existing situations while a new rule will apply to all future cases.

Calculating Tax on LTCG from sale of Equity shares: Step (1): Calculate Cost of Acquisition:

1.       The benefit of inflation indexation of the cost of acquisition will not be available for the purpose of calculating LTCG on equity