When the Union Budget of February 2018 reintroduced tax on long-term capital gains from equity investments, it marked the end of a decade-long exemption that many investors had come to take for granted. Understanding what changed, and what it meant for portfolios built over years, was the reason Ashutosh Financial Services brought together a session dedicated entirely to this shift. The company has long held the view that sound financial decisions rest on clear understanding, not assumption, and this changing tax landscape was exactly the kind of moment that called for direct, practical explanation rather than speculation.
The session, titled “Taxation of Long Term Capital Gains on Equity Shares & Equity Oriented Mutual Funds,” was held in Rajkot on 3rd February 2018 for an audience of high-net-worth individuals. Daxesh Kothari led the discussion, walking attendees through the mechanics of the new provisions and what they meant for existing and future equity holdings. Given that HNI portfolios typically carry meaningful exposure to listed shares and equity mutual funds, the timing and relevance of the session were hard to overstate: this was a rule change that touched almost every equity investor in the room directly.
The session began by laying out the previous position. Until this budget, gains on equity shares and equity-oriented mutual funds held for more than twelve months were treated as long-term capital gains and were fully exempt from tax under Section 10(38) of the Income Tax Act. With effect from 1st April 2018, that blanket exemption was being withdrawn. In its place, long-term capital gains exceeding ₹1,00,000 in a financial year would attract tax at 10%, with dividends from equity-oriented mutual funds also becoming subject to a 10% Dividend Distribution Tax. Notably, this new tax would apply without the benefit of indexation, meaning gains could not be adjusted for inflation the way they can under some other capital gains provisions.
One of the more technical, and more important, aspects covered was how the cost of acquisition would be calculated for shares and mutual fund units bought before 1st February 2018. Rather than taxing the entire gain since original purchase, the law introduced a grandfathering mechanism: the cost of acquisition would be deemed to be the higher of the actual purchase price and the lower of the fair market value as on 31st January 2018 or the actual sale price. In practice, this meant that gains accumulated up to that January date would largely escape taxation, and only appreciation beyond that point would be taxed going forward. The session used several worked examples to make this concrete, showing how the same formula could produce very different outcomes depending on whether a share had risen, stayed flat, or fallen in value between the valuation date and the eventual sale. These illustrations also clarified an important nuance around losses: a notional loss arising purely from the deemed valuation could not be set off, since it existed only on paper, whereas a genuine long-term capital loss from an actual sale below the deemed cost could be set off under the applicable provisions.
The discussion also placed this change in a broader context. Other asset classes such as real estate, gold, and fixed deposits had continued to be taxed on gains all along, and equity gains remain taxable in several other economies, raising the question of whether the earlier tax-free status of equity gains in India had itself been the anomaly. The session noted the scale involved, with a substantial volume of gains having accrued tax-free before this change took effect, giving useful perspective on why the reform was introduced in this calibrated, partially grandfathered form rather than applied retrospectively in full.
Beyond the technical explanation, the session translated these rules into practical guidance. Investors were encouraged to reconsider the dividend option in equity and debt mutual funds in favour of the growth option, since dividends had now become taxable and no longer offered the advantage they once did. For those depending on their investments for regular income, a Systematic Withdrawal Plan was presented as a more tax-efficient alternative to receiving periodic dividends.
Sessions like this reflect why Ashutosh Financial Services continues to prioritise financial education alongside its core services. Tax law affecting long-held investments does not change often, but when it does, the difference between understanding it well and misreading it can be significant. Continuing to explain such shifts clearly, and in language investors can actually use, remains part of how the organisation approaches its work with clients.
