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

By Mohammed S Chokhawala

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Updated on: Jul 17th, 2024

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5 min read

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 categorised into short-term and long-term assets.  Long-term capital gain/loss arises if a long-term capital is transferred. Assets are called as long-term if held for more than 36 months, except for certain exceptions where the period is shorter: listed shares and equity-oriented funds qualify if held for more than 12 months, while immovable property and unlisted shares require a holding period of over 24 months to be considered long-term capital assets. In this article, we will discuss long-term capital gains in detail, including the tax rates, calculations, exemptions, and examples.

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. 

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 not available in respect of LTCG taxable u/s 112A and LTCG from the transfer of bonds and debentures.

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 - (Indexed cost of acquisition + Indexed cost of improvement) - exemptions under Section 54/54B/54D/54EC/54F.

Calculation of LTCG in a table format:

Particulars

Amount

Amount

Full value of consideration

xxx

 
Less: Expenses incurred wholly and exclusively for such transfer

(xxx)

 
Net sale consideration 

xxx

Less: Indexed cost of acquisition

xxx

 
Less: Indexed cost of improvement

xxx

 
Long-term Capital Gains(LTCG) 

xxx

Less: Exemptions under section 54/54B/54D/54EC/54F 

xxx

Long-term capital gains chargeable to tax 

xxx

Long-term Capital Gain Tax Rate

The long-term capital gain tax rate varies depending on the type of asset being sold. The tax rates applicable for different types of assets are as follows:

  1. Listed equity shares and equity-oriented mutual funds: 
  • Long-Term Capital Gains (LTCG) that exceed Rs. 1 lakh in a financial year are subject to a 10% tax rate. Gains up to Rs. 1 lakh in a financial year are exempt from taxation.
  1. Other assets ( such as real estate, land, unlisted shares, etc.): 
  • LTCG is taxed at 20% after taking the indexation benefit. 

Long-term Capital Gain Tax on Shares

A long-term capital gain arises from selling shares held for over 12 months. It is determined by subtracting the purchase price from the sale price of shares held for over a year. The gain reflects the investor's net profit from the sale of the shares.

Listed equity shares qualify as long-term capital assets if held for at least 12 months. In contrast, gains from unlisted equity shares are categorised as long-term only if the holding period is a minimum of 24 months.

Click here to learn more about the LTCG on shares.

Long-term Capital Gain Tax on Property

A long-term capital gain arises from selling property held for more than 24 months. The LTCG is calculated at 20% with indexation benefit. There are certain exemptions available which will further reduce your LTCG chargeable to tax.

Click here to learn more about the LTCG on property

Long-term Capital Gain Example

John bought a house in 2005 for Rs. 20,00,000. He sold it in 2023 for Rs. 65,00,000. Calculate the taxable capital gain assuming the Cost Inflation Index (CII) for 2005-06 is 117 and for 2023-24 is 348.

Particulars

Amount

Amount

Full value of consideration

65,00,000

 
Less: Expenses incurred wholly and exclusively for such transfer

Nil

 
Net sale consideration 

65,00,000

Less: Indexed cost of acquisition(20,00,000 * 348/117)

59,48,717

 
Less: Indexed cost of improvement

NIL

 
Long-term Capital Gains(LTCG) 

5,51,283

Less: Exemptions under section 54/54B/54D/54EC/54F 

NIL

Long-term capital gains chargeable to tax 

5,51,283

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.

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.

Click here to learn more about the exemptions available. 

Related Articles:

LTCG Calculator on sale of equity shares

Long Term Capital Gains (LTCG) on the Sale of Stocks, Shares etc.

Tax on Long-term capital gains on equity funds

Section 54EC- Deduction on LTCG Through Capital Gain Bonds

Capital Gains Exemption

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Frequently Asked Questions

Is basic exemption limit available for LTCG?

Yes, basic exemption limit is available for long-term capital assets.

What is the surcharge on long term capital gain?

The surcharge is applicable if total income exceeds Rs. 50 lakhs but the surcharge on LTCG is capped at 15%.

How much long-term capital gain on listed shares is tax free?

The long-term capital gain on listed shares is taxable at 10% if it exceeds Rs. 1,00,000. Hence, LTCG on listed shares upto Rs. 1,00,000 is exempt.

How is long term capital gains for real estate taxed in India?

Long-term capital gains (LTCG) on real estate arise from selling property held for more than 24 months. LTCG is taxed at a flat rate of 20% with indexation benefit. 

Is long-term capital gain tax rate is 10% or 20%?

The tax rates for LTCG are:

For listed equity shares and equity-oriented funds: 10% in excess of Rs. 1,00,000

For other assets (such as real estate, gold, unlisted shares, etc.): 20% with indexation benefit

Is there any way to avoid paying taxes on LTCG?

Yes, you can avoid paying taxes on LTCG by claiming exemptions under Section 54/54B/54D/54EC/54F. These exemptions can be claimed only if the conditions mentioned under these sections are met.

About the Author

I'm a chartered accountant, well-versed in the ins and outs of income tax, GST, and keeping the books balanced. Numbers are my thing, I can sift through financial statements and tax codes with the best of them. But there's another side to me – a side that thrives on words, not figures. Read more

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