How To Calculate Long Term Capital Gain On Shares: Capital gains tax is levied on the profit which is made by an investor when an investment gets sold. Gains or profits arising from the transfer of capital assets get charged to tax under the head “Capital Gains.”

Income from capital gains gets classified as “Short Term Capital Gains (STCG)” and “Long Term Capital Gains (LTCG).” Capital gains taxes are applied only to “capital assets,” including stocks, bonds, real estate, etc.

Long-term capital gains are charged on profits of investments that are held for more than one year. When the shares or any other taxable investment assets are sold, the capital gains (profits) are known as “realized.”

Therefore, these realized gains are subject to taxes. The tax doesn’t apply to unsold investments or capital gains that have not been realized. Shares will not incur taxes until and unless they are sold, irrespective of the time these shares are held or how much they rise in value.

Therefore, to calculate long term capital gain on shares, the investment has to be sold after the period of 12 months on profit. In this article, we will cover how individuals can calculate long term capital gain on shares so that they can manage their money wisely. Read on!

The Holding Period For Long-Term Capital Gains

Before understanding how to calculate long term capital gain on shares, it is important to know the holding periods which will be considered for LTCG. Any sort of capital asset which is being held by an assessee for over 36 months immediately preceding the date of its transfer will be regarded as a long-term capital asset.

However, for certain assets such as shares (equity or preference) that are listed on the recognized stock exchange in India (listing is not mandatory if the transfer took place on or before Jul 10, 2014), units of equity-oriented MFs, listed securities such as debentures and government securities, units of UTI and Zero-Coupon Bonds (ZCBs), the period of holding which will be considered for the taxation purposes will be 12 months and not 36 months.

If there are unlisted shares, the period of holding will be considered 24 months instead of 36 months. In the case of immovable property (land or building or both), the holding period will be considered as 24 months from AY18-19. However, before AY18-19, the holding period was 36 months.

Calculation Of Long-Term Capital Gains Tax

Indexation benefits can be availed by an investor for profits made before Jan 31, 2018. In such cases, long-term capital gains are required to be calculated by deducting the indexed purchase price of the shares and brokerage paid by the investor from the selling price.

According to the latest income tax rules, indexation benefits are not applied to gains that are realized after Jan 31, 2018. In such cases, LTCGs are calculated by deducting the actual purchase price of shares (and brokerage given by an investor) from the selling price of the share.

In the case of LTCG arising out of the sale of shares, the tax rate which will be levied is 10% (excluding cess or surcharge). This will be levied if the amount of gain is more than INR1 Lakh. No indexation facility is available to sellers.

Securities except for the ones which are mentioned in Section 112A are subject to taxation. The following points will help in monitoring the nature of a long-term capital gain tax on shares:

  • If there has been a sale of listed shares on recognized stock exchanges and MFs for the ones on which STT has been paid, the applicable tax will be 10% for a profit exceeding INR1 lakh.
  • If there has been a sale of bonds, debentures, shares, or other listed securities on which STT has not been paid, the applicable tax rate will be 10%.

Reduction Of Capital Gains Tax Liability

Now that we know how to calculate long term capital gain on shares, investors should be aware that there are certain ways in which they can reduce their total tax liability. 

1. Tax Harvesting

According to the method of tax harvesting, an investor is allowed to book profit in equities and not face any sort of tax liability provided that the gains are made under 1 lakh and these gains are reinvested.

Now, the rate at which shares or MF units are repurchased will be the new cost of acquisition. To extract the maximum benefit, an investor should repeat this process every year to take the benefit of the INR1 lakh exemption.  

2. Setting Off And Carrying Forward Losses

Another way in which an investor can save his LTCG tax liability is by setting off gains that have been earned against losses that are incurred. Investors should keep in mind that short-term capital losses are allowed to be set off against LTCG and STCG. However, long-term capital losses are allowed to be settled only against LTCG. 

Also Read: Difference Between Long-Term And Short-Term Capital Gains!

To Sum Up

Individuals should always try to work alongside tax consultants or financial consultants when they try to calculate long term capital gain on shares. This is because these consultants are well-aware of the prevailing tax laws, and they can help investors save a significant amount on taxes. 

Any sort of income earned is liable to be taxed in India, but the Indian government has also made provisions through which individuals can save some amount of tax. These provisions keep on changing from time to time, and investors should keep themselves updated about the same.

Tags: Calculate Long Term Capital Gain On Shares, What is the Ltcg tax rate on the shares sold after 1 year?, How is capital gains tax calculated on stocks?, How do you calculate long term capital gain?, How do you calculate long term and short term capital gains?, Long Term Capital Gain on Shares, How to calculate Capital Gains Tax on Shares, long-term capital gain tax on shares in india, long-term capital gain on shares exempt under section