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Direct Tax Code Will Keep Equity Gains Tax-Free till April 1, 2011

NDTV says there’s a good thing in the new Direct Tax Code: (HT: Samarth Modi)

Equity investors should remain invested despite the new direct tax code proposing the return of the long term capital gains tax. At least that’s what the government wants investors to believe, finance ministry officials have told NDTV.

Investors holding long term shares till March 31, 2011, will not be subjected to the long-term capital gains tax. And April 1, 2011 may become the new cutoff date, to begin the calculation of the long-term capital gains.

This means, stock prices as on April 1, 2011 will be the new base price for computing capital gains tax.

Implications – you don’t have to do the sell-and-buy-back to avoid capital gains tax, since any gains upto April 1, 2011 will be tax free.

Of course, only if this is confirmed – we have to hear directly from the FinMin.

Note that this also means any stocks in which you have losses will be valued as if they were bought on April 1, 2011. So if you bought Airtel at 400 and it is at 300 on April 1, your purchase price is assumed to be 300. Then, if you sell at 400 later, the Rs. 100 will be a gain – even though you just broke even. (Correct me if I’m wrong)

So in case you have accumulated losses, is it possible to sell them before March 31 and buy the shares back, so you can offset such losses against future long term profits? I don’t know if you can carry forward long term capital losses in shares; much check this out. Anyone know?

  • Px says:

    >The one way out, is to sell the loss making stocks off market, to a family member, friend or acquaintance. But i don't know how kindly the taxman will take to this selective method of booking losses.

  • Sirka pyaaz says:

    >Youre right. you cant book a capital loss on shares by selling them in the open market (if you held them for over a year). But you can book the loss by doing an offmarket transaction.

  • Sirka pyaaz says:

    >Sorry, the previous comment wasnt clear enough. If you held a share for more than one year and sell it in the open market, the capital gains are exempt. So the law says 'hey, im not taxing you on the gains, so im not gonna let you take the benefit of accumulating your losses'. Which is fair enough. This means both profits AND losses will be out of the picture. To overcome this, sell your stocks for a loss in an offmarket transaction. In that case, gains are taxable so losses will be allowed.

  • mkd says:

    >I think there is a rule allowing to carry forward captal losses for upto 7 years and offsetting them against future profits.

  • Madhur Capital Services:: says:

    >Yes, Long-term capital losses can be set off ONLY against long-term capital gains. The losses can be carried forward till max. 8 years.

  • sandeep says:

    >currently you can't carry forward long term losses on shares (as the long term profits are tax free)

  • Anonymous says:

    >Long term Capital Loss from Shares and Equity Mutual Funds cannot be carried forward at present.


  • Arghya says:

    >I think it is logical move. It would minimize the headache of asset reallocation(here in this sell-buy same security.). I would say it’s best to calculate tax only on year-to-year price, removing gain-loss carry forward totally from the picture. I support this move.

    You know, initially when Direct Tax Code was initiated, I was so excited about wind of change, reform. But again as usual, frustration!!!!

    It seems the new Direct-Tax-Code would be nothing but the same old wine in a new bottle. Tax benefit on home-loan interest remains because of pressure from builders. Let’s see what happens with fringe benefits? Can government sustain the pressure from all industries?

  • Px says:

    >Sandeep what about those unlisted shares and offmkt shares , i suppose u can book losses
    what about the stan chart issue?

  • Jayant says:

    >Well, the new tax code is a mix bag. There are some very lucrative aspects along with the stringent ones, but more for people trying to evade tax. The impact is strong on almost all the sectors. I see the Direct Tax Code impact more on the tenure of investments. Others are –
    • Tax deduction limit on savings to be hiked to ` 3 lakhs.
    • To scrap long, short-term capital gains distinction.
    • Business losses can be carried forward indefinitely.
    • No tax deduction on interest payable on any government security.
    • Base year for calculation of capital gains tax moved to April 2000.
    • Income from certain transfers not to be treated as capital gains.
    In order to bring simplicity for taxation of capital gains, the proposal looks at phasing-out the distinction between the short-term and long-term capital gains. The capital gains will be measured as income from common sources. This shift will surely hinder long term savings. Currently, investments in equity-oriented mutual funds and stock market assets that are held for tenure of more than a year are considered as long-term capital assets and are non-taxable. Whereas, any income gained from investments of lesser than 12 months are considered short-term investments and will be taxable with a rate of 15%. This will not provide any incentive to an investor for long-term investments and they will be looking out for quicker buck with short-tenured investments; especially if their actual investments are yielding capital gains over a shorter period. They will be persuaded to book gains more recurrently, whenever available and seize the profits that accrue, irrespective of the tenure. Check for more information to your questions and on retail equity broking, with GEPL professionals at –

  • Manohar says:

    Direct Tax Code is a looting plan by the scam ridden government. Government is encouraging FII manipulation of stock market while discouraging small time Indians to be part of stock market by taxing equity gains.