Long-Term Capital Gains(LTCG): Tax Rates, How to Calculate, Exemptions and Examples

Any profit/gains arising from the transfer of capital assets such as property, shares, bonds, vehicles, etc., are subject to income tax under the head "Income from Capital Gains." Capital assets are categorized into short-term and long-term assets.  Long-Term Capital Gain / Loss arises if a Long-Term Capital Asset is transferred. 

Key Takeaways:

Broadly speaking, the following is the summary of significant points discussed in this article: 

• Period of Holding:
  • Listed equity shares, equity-oriented fund and business trust are Long Term Capital Assets if held for more than 12 months. 
  • Other assets held longer than 24 months are Long Term Capital Assets. 
• Tax rate:
  • Long-Term Capital Gains on Listed equity shares, equity-oriented fund and business trust are taxed at 12.5% without indexation. Exemption up to Rs.1,25,000 is available.
  • LTCG of other assets are taxed at 12.5% without indexation. Option available for land and building.
• Exemptions can be claimed under section 54 series to reduce Capital Gains taxes.

What is Long-term Capital Gain (LTCG)?

Capital gains arising from the transfer of Long-Term Capital Assets is referred to as Long-Term Capital Gains. The Long-Term Capital Gains taxation is divided into two sections: Section 112 and Section 112A. 

Section 112A applies in the case of the following assets:

• Equity share in a listed company
• Unit of equity-oriented fund
• Unit of business trust

Section 112 applies to all other cases of Long-Term Capital Gains not covered under Section 112A.

How to Calculate Long-term Capital Gain?

To calculate the long-term capital gains accurately, follow the steps mentioned below:

Step 1: Determine the Full value of consideration

The total amount received from the transfer of capital assets. It includes the monetary payment received or fair market value in certain specified circumstances.

Step 2: Determine the Net value of Consideration

The net value of consideration is determined by deducting expenses related to transfer such as commission, brokerage, etc.

Step 3: Calculate the Cost of Acquisition 

The purchase price of the asset is to be determined, and in the case of assets which get indexation benefits (like immovable property), we have to adjust the cost of acquisition using the Cost Inflation Index, which the government notifies every year. Indexation benefit has been removed for transfer made after 23rd July, 2024.

The formula for calculating the indexed cost of acquisition is:

Indexed cost of acquisition = Cost of acquisition x (CII of the year of transfer / CII of the year of acquisition)

Note: The benefit of indexation is available only for individuals and HUF on sale of land and building.

Step 4: Deduct exemptions under section 54/54B/54D/54EC/54F

Certain types of long-term capital gains may be eligible for exemptions under specific conditions (e.g., reinvestment in certain assets like residential property).

Step 5: Long-Term Capital Gains chargeable to tax

The long-term capital gains chargeable to tax formula is:

LTCG chargeable to tax = Net sale consideration - Cost of Acquisition - Cost of Improvement - Exemptions under Section 54/54B/54D/54EC/54F.

Calculation of LTCG in a Table Format:

Long-term Capital Gain Tax Rate 

Long-term Capital Gain Tax Exemptions

There are various exemptions available under the Income-tax Act that helps reduce the LTCG chargeable to tax if the capital gain amount is reinvested in certain specific assets or instruments. There are specific criteria to claim these deduction i.e. certain conditions are to be met to claim these exemptions.

One of the popular exemptions is investment in specifed bonds under section 54EC. This exemption is available on Long Term Capital Gain on any asset.

Long-term Capital Gain Example (With Indexation)

John bought a house in 2005 for Rs. 20,00,000. He sold it in August 2024 for Rs. 65,00,000. Now he has an option of choosing the tax rate of 12.5% without indexation or 20% with indexation.

 Calculate the taxable capital gain assuming the Cost Inflation Index (CII) for 2005-06 is 117 and for 2024-25 is 363. 

Indexation benefit has been considered in the above example as sale is made before 23rd July, 2024. The tax on said transfer will be applicable at the rate of 20%.

Long-term Capital Gain Example (Without Indexation)

John bought a house in 2005 for Rs. 20,00,000. He sold it in August 2024 for Rs. 65,00,000. 

LTCG Tax on Specific Assets

Long-term Capital Gain Tax on Shares

• Listed equity shares qualify as Long-Term Capital Assets if held for at least 12 months. It is determined by subtracting the purchase price from the sale price of shares held for over a year.
• In contrast, gains from unlisted equity shares are categorized as Long-Term only if the holding period is a minimum of 24 months.
• The gain reflects the investor's net profit from the sale of the shares.

Long-term Capital Gain Tax on Property

• Long-Term Capital Gain arises from selling property held for more than 24 months. 
• As mentioned above the rates will be 20% for transfer made on or before 22nd July, 2024 after indexation benefit. For subsequent transfers, the tax rate shall be 12.5% without the indexation benefit. 
• There are certain exemptions available which will further reduce your LTCG chargeable to tax.
• in case of a sale of land and building made after 23rd July, 2024, taxpayer will have the option to pay tax at 20% with indexation benefit and at 12.5% without indexation benefit if acquisition of such land/building has been made on or before 22nd July, 2024.

Clarifications on Treatment of Certain Assets

• It was clarified that ULIPs with premiums exceeding 10% of the policy’s sum assured, alongside those with annual premiums above Rs. 2.5 lakh  - the maturity proceeds should be treated as capital gains.
• It is proposed to amend Section 2(14) to clarify that securities held by investment funds under Section 115UB, will be treated as capital assets.

How to Fill Long-term Capital Gain in ITR-2?

The details of capital gains during the year is to be filled in the Schedule CG of Part A of ITR-2 form. The total amount of capital gains shall be filled in the Part B - Total income which will be auto-populated from the details you filled in the other schedules.

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