Dear Professional Seniors & Friends,
We are starting a professional challenge in which we shall be posting 2 MCQs based on contemporary practical professional matters to be answered by participants. The answer of these MCQs shall be posted next day for the self assessment of the participants.
Hope we all enjoy this series which may help all of us, whether in practice or in service; to update us on practical professional matters.
1) In view of amendment in taxation of Long term capital gains on listed equity shares from AY 2019-20, if Mr. X purchased shares of A Ltd on 1.4.2006 for Rs. 100,000, the market value of the shares as on 31st January, 2018 is Rs. 400,000 sold these shares on 25th March, 2018 for Rs. 500,000, the amount of LTCG taxable in hands of Mr. X is:
A) Rs. 400,000
B) Rs. 300,000
C) Rs. NIL
D) Rs. 100,000
2) If in the above case, these shares shall be sold by Mr. X on 10th April, 2018 for Rs. 600,000, the amount of LTCG taxable in hands of Mr. X is:
A) Rs. 500,000
B) Rs. NIL
C) Rs. 200,000
D) Rs. 100,000
Answer to MCQ Challenge #0001
Before the amendment, the taxability of LTCG on listed equity is exempted u/s 10(38) of the ITA (Income Tax Act) subject to certain conditions. After the amendment by Financial Bill 2018 which amended Section 10(38) seeks to withdrew exemptions by inserting a new proviso read as “Provided also that nothing in this clause shall apply to any income arising from the transfer of long-term capital assert, being an equity share in a company or a unit of an equity oriented fund or a unit of a business trust, made on or after the 1st day of April, 2018” and also inserted Section 112A in the ITA which seeks to provide special provision for taxability of such LTCG, the special features are as under:
1. Capital gains arising from long-term capital asset in the nature of listed securities, etc., earlier exempted u/s 10(38) shall be charge able to tax @10%, exceeding Rs.1,00,000/-. This concessional rate of 10% will be applicable on the satisfaction of the certain conditions.
2. Effective from AY 2019-2020.
3. No tax on LTCG accrued as on 31st January, 2018 i.e. grandfathering provisions.
4. No indexation and no foreign currency adjustment.
5. The cost of acquisitions in respect of the long term capital asset acquired by the assessee before the 1st day of February, 2018, shall be deemed to be the higher of –
[a] The actual cost of acquisition of such asset; and
[b] The lower of –
(I) The fair market value of such asset; and
(II) The full value of consideration received or accruing as a result of the transfer of the capital asset.
In view of the above, the answer of question no 1 is C (Rs. Nil) as these provision are applicable from AY 2019-20 and answer to question 2 is D (Rs. 100,000) as LTCG is Sale consideration less cost of acquisition i.e. market value as on 31st January, 2018 due to grandfathering provisions less threshold Rs. 100,000.
(Disclaimer: Please do not treat this as professional opinion, you can definitely have your own opinion.)
Regards – CA Sanjay Kumar Agrawal
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