A grandfathering clause is a provision in which an old rule continues to apply to some existing situations while a new rule will apply to all future cases. In the context of taxation, a grandfathering clause ensures that the tax levied on gains is prospective and is levied from the date of levy of such tax. This is done to protect the interest of taxpayers and to prevent sudden changes that may cause undue hardship or negative consequences for those who have already invested time, money, or resources under the old rules. Grandfathering clauses have been used in various contexts, including taxation, to provide exemptions for persons or entities to continue with activities or operations that were approved before the implementation of new rules, regulations, or laws. In the case of long-term capital gains on the transfer of listed equity shares and equity-oriented mutual fund schemes, the Finance Act, 2018 reintroduced tax on LTCG on sale of listed shares and equity-oriented mutual fund schemes w.e.f. 1st April 2018, i.e. FY 2018-19 with a grandfathering clause. This means that all the capital gains accrued on equity/mutual funds until January 31 will be exempt from taxation.
