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.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.
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.
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?