At the moment, the holding interval to qualify as a long-term asset for items of an equitylinked mutual fund is 12 months, whereas it’s 36 months if it’s a debt-oriented mutual fund. There may be additionally a distinction in charges — the previous attracts LTCG tax at 10%, whereas the speed is 20% (with indexation) for items of debtoriented mutual funds.
In line with tax specialists, the open-ended points referring to grandfathering of listed shares for the aim of computing LTCG must also be resolved. The Finance Act, 2018 had launched a tax of 10% (with out indexation) on LTCG arising on sale of listed shares on and after April 1, 2018. Nevertheless, if the listed shares had been acquired previous to February 1, 2018, appreciation within the worth of shares from the date of buy as much as January 31, 2018 was ‘grandfathered’. In such instances, taxpayers had the choice to take the market worth (honest market worth) as of January 31, 2018 as the price (buy) worth if their precise price of acquisition was lower than this ‘honest market worth’. However ambiguity exists regards this step-up provision, leading to hardship for taxpayers. Mahendra Sanghvi, chartered accountant and previous president of the Chamber of Tax Consultants (CTC), identified, “Part 55(2)(ac) of the Income Tax Act requires the shares must be acquired earlier than February 1, 2018. It’s not clear whether or not this situation is required to be met in case of subsequent acquisitions. If pursuant to his father’s dying, a son inherits shares owned by his father previous to February 1, 2018, will the son get the grandfathering profit? The tax provisions don’t explicitly cowl this.”
In its pre-Funds memorandum, CTC identified this subject additionally crops up in instances of mergers. For instance, if a shareholder owned shares of HDFC previous to February 1, 2018, post-merger he’ll get shares of HDFC Bank. Will the advantage of grandfathering be obtainable to him in respect of the shares of HDFC Financial institution?