Grandfathering
The rule protecting gains accrued before long-term capital gains tax on listed equity was reintroduced in 2018.
Formula
Deemed Cost = Higher of (Actual Cost) and (Lower of Fair Market Value on 31 January 2018 and Sale Consideration)
Unit
₹
In depth
Long-term gains on listed equity were exempt until Budget 2018 reintroduced the tax, and grandfathering ensures that appreciation up to 31 January 2018 remains untaxed. The formula is a two-step comparison that trips people up: the deemed cost cannot exceed the sale price, which prevents the rule from creating an artificial loss. It applies only to equity shares and equity-oriented fund units acquired before 1 February 2018 and held long-term. The fair market value used is the highest quoted price on 31 January 2018, and brokers and fund houses publish these figures.
Worked example
Shares bought at ₹120, worth ₹400 on 31 January 2018, sold at ₹900. Deemed cost is the higher of 120 and the lower of (400, 900), so ₹400. The taxable gain is 900 - 400 = ₹500, not ₹780.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Grandfathering” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.