LTCG grandfathering: the 31 Jan 2018 rule, worked

Why 2018 still matters

Until 31 March 2018, long-term gains on listed equity and equity funds were tax-free. When the Budget that year brought them back into tax (section 112A, renumbered in the Income-tax Act 2025 with the treatment unchanged), it promised not to tax the gains already made. The device is a stepped-up cost: for anything bought on or before 31 January 2018, the cost you use is not always what you paid.

Plenty of SIPs from 2015–2017 are still running, so every redemption of those early units goes through this rule.

The formula

Cost of acquisition = the higher of:

1. what you actually paid, and
2. the lower of the fair market value (FMV) on 31 January 2018 and the price you sell at.

For mutual fund units, FMV is the NAV on 31 January 2018. For listed shares it is the highest traded price that day.

The "lower of FMV and sale price" part stops grandfathering manufacturing a loss. The "higher of" part makes sure you are never charged on less than your real cost.

The four cases

Take a unit bought at the price in the first column, with a 31 January 2018 FMV of 150:

Row 1 is the usual one: the pre-2018 rise from 100 to 150 is forgiven, and only the rise after the cut-off is taxed. Row 2 shows the floor: the price fell back after January 2018, so the gain since then is zero, not a loss of 30. Rows 3 and 4 are for units bought near the peak, where grandfathering does nothing because the actual cost is already higher than the FMV.

Two real purchases

The NAV of UTI Nifty 50 Index Fund (Direct, Growth) on 31 January 2018 was ₹71.3422. On 30 October 2026 it was ₹162.3751. Suppose two investors each hold 10,000 units and sell at that last NAV.

Bought on 29 January 2016 at ₹48.031. Actual cost 48.031 is below the FMV, and the sale price is above it, so the cost used is ₹71.3422.

• Gain against actual cost: (162.3751 − 48.031) × 10,000 = ₹11,43,441
• Taxable gain after grandfathering: (162.3751 − 71.3422) × 10,000 = ₹9,10,329

About ₹2.33 lakh of the gain, the part earned before February 2018, is outside tax.

Bought on 29 January 2018 at ₹72.0043. Two days before the cut-off, at a NAV slightly above the 31 January value. The higher-of test picks the actual cost, so the taxable gain is (162.3751 − 72.0043) × 10,000 = ₹9,03,708. Grandfathering changes nothing here, which is row 3 of the table.

On ₹9,10,329 the tax works out as (9,10,329 − 1,25,000) × 12.5% = ₹98,166, plus 4% cess, ₹1,02,093, if no other long-term gains used the ₹1.25 lakh exemption that year.

Things that trip people up

• The date is acquisition, not allotment of the SIP plan. Each SIP instalment is a separate purchase. Instalments up to 31 January 2018 get the stepped-up cost; later ones do not. Since units go out first-in-first-out, the grandfathered units are sold first. See how SIP redemptions are taxed, FIFO.
• Your statement already has the FMV. Capital gains statements from CAMS and KFintech show the 31 January 2018 value for old units. Check that it matches the NAV of that day for your plan, since a Direct plan and a Regular plan have different NAVs.
• Grandfathering is only for equity. Debt funds, gold and property have their own rules.

To work out the gain on a whole holding, use the capital gains calculator walkthrough. To spend the yearly ₹1.25 lakh exemption on purpose, see gain harvesting over several years.

Reading this

• NAVs are from AMFI data for UTI Nifty 50 Index Fund, Direct Plan, Growth; the 30 October 2026 NAV is used as an example sale price, not a recommendation to sell.
• Tax is at 12.5% above ₹1.25 lakh plus 4% cess; surcharge is ignored.
• This explains how the rule works. It is not tax advice for any particular return.