Budget 2018 was passed by Parliament on Wednesday and here are the new amendments that would impact your investments. The amendment allows grandfathering of long-term capital gains tax (LTCG) to the unlisted shares as well. This means gains made on unlisted securities, which get subsequently listed in stocks markets, will be grandfathered as of January 31st, 2018 for the purpose of calculating LTCG.
The Budget 2018 had after a gap of 14 years reintroduced a 10% tax on long-term capital gains (LTCG) exceeding Rs 1 lakh from the sale of listed shares. It also ‘grandfathered’ or exempted all gains made on such stocks prior to January 31st, 2018. But when the budget was presented it was not clear how it would treat the gains on the unlisted securities, which got listed post-January 31, 2018.
After the amendment included in the Finance Bill, the unlisted securities would get the benefit of grandfathering of its gains.
The amendment also applies the concept of indexation to gains made in such shares. Indexation allows you to adjust for the effect of inflation, reducing the overall taxable gain in the asset. It is already available in case of assets such as real estate and debt mutual funds. The tax rate on these unlisted shares will, however, continue to be higher at 20% (as against 10% for listed shares).
The indexation benefit is also not available for LTCG on listed securities.
Currently, 15% tax is levied on capital gains made on the sale of shares within a year of purchase (short-term capital gains), while LTCG tax is nil for shares sold after a year of purchase.
The amendments to the Finance Bill have also introduced a new section in the Government Savings Banks Act, 1873 to which the Public Provident Fund (PPF) was moved, following the repeal of the PPF Act, 1968. This repeal had removed the protection against attachment by creditors and the Income Tax Department available to PPF account holders, as we explained here. The amendments to the Finance Bill have restored this protection. The new section reads:
The amount standing to the credit of any depositor in the Public Provident Fund Scheme shall not be liable to attachment under any decree or order of any court in respect of debt or liability incurred by the depositor.
The wording of the section in the Government Savings Banks Act is almost identical to the wording in Section 10 of the now repealed Public Provident Fund Act, 1968. The new amendment thus protects the money held in PPF accounts from attachment by any creditor, including the Income Tax Department.