Why should you Sale your shares Before 31-3-2018?

Why should you Sale your shares Before 31-3-2018?


why sale share

Changes in the taxation laws brings with it new sets of ambiguities and confusion in the mind of taxpayers. It gets amplified with the new concept of taxation in the Statute book. One such change is reintroduction of Long Term Capital Gain (LTCG) on sale of shares with “Grandfathering” Clause. It is all set to find place in the Income Tax Act with proposed flat tax rate of 10% without any indexation benefit. Appreciation in value from the date of acquisition to 31.01.2018 will continue to be exempt even if the shares are sold after 31.03.2018, thanks to the grandfathering clause.

In my earlier issue, I have hinted that the new tax provision will be applicable only after 01.04.2018 i.e., the date from which section 10(38) is proposed to be amended. Shares sold up till 31.03.2018 will continue to enjoy the exemption under the present tax regime. The date of 31st January 2018 announced in the budget is only for computing LTCG on shares sold after 31.03.2018. It doesn’t have any tax implication on transactions from 01.02.2018 to 31.03.2018. Taxpayer can validly book LTCG on their existing investment before 31st March 2018.

Further question raised by the readers are:
i] whether shares with holding period of more than one year should be sold once before 31.03.2018 so as to avoid tax on share income?
ii] Whether “Grandfathering clause” would safeguard the interest of taxpayers if the shares are sold after 31.03.2018?


How effect is given to Grandfathering Clause:

To give effect to grandfathering clause, cost of acquisition is deemed as higher of
  1. Actual cost of acquisition;
  2. Lower of (i) Highest price of share on stock exchange on 31.01.2018 or (ii) sale value received on sale of shares.
As a result, if actual cost of acquisition is Rs. 100/- and highest price as on 31.01.2018 is Rs. 150/-, Rs. 50 will not be taxable as it would replace Rs. 100/- due to grandfathering clause mentioned above.

Coming back to the questions of the readers, it will be advisable to book the profit once before 31.03.2018 if the market rate of the share is higher than the price as on 31.01.2018. Result- Entire profit would be exempt from tax in FY 2017-18.

Let us try to understand it with example.

Cost of acquisition of share on 01.01.2017 was Rs. 100/- , Price as on 31.01.2018 is Rs. 250/- and the price as on 31.03.2018 & 01.04. 2018 is same at Rs. 300/-. Deemed cost of acquisition by virtue of grandfathering clause would be Rs. 250/- as it is higher of (a) Rs. 100/- or (b) Lower of Rs. 250 or Rs. 300.

If the shares are sold on or before 31.03.2018, entire amount would be exempt u/s 10(38). However, if the shares are sold on or after01.04.2018, Rs. 50/- will be taxable as LTCG.

Transaction would be tax neutral if the price of shares on the date of sale (after 31.01.2018) is lower than the rate prevailing as on 31.01.2018.

In short, it is advisable to sale the shares on or before 31.03.2018 if rate are higher than the price of the shares on 31.01.2018. Needless to say, timing the transactions is a valid tax planning tool in the hands of the taxpayers.

why sale share

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