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Dream Home
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1st Crore
Trusted by 1L+ Indians
Want to Achieve any of the below Goals upto 80% faster?
Dream Home
Dream Wedding
Dream Car
Retirement
1st Crore
Dream Home
Dream Wedding
Dream Car
Retirement
1st Crore
Trusted by 3 Crore+ Indians
Want to Achieve any of the below
Goals upto 80% faster?
Dream Home
Dream Wedding
Dream Car
Retirement
1st Crore
Trusted by 3 Crore+ Indians
Want to Achieve any of the below
Goals upto 80% faster?
Dream Home
Dream Wedding
Dream Car
Retirement
1st Crore
Trusted by 3 Crore+ Indians
Want to Achieve any of the below Goals upto 80% faster?
Dream Home
Dream Wedding
Dream Car
Retirement
1st Crore
Trusted by 3 Crore+ Indians
Want to Achieve any of the below Goals upto 80% faster?
Dream Home
Dream Wedding
Dream Car
Retirement
1st Crore
Decoding Long-Term Capital Gains on Shares - Calculations & Tax Impact
Decoding Long-Term Capital Gains on Shares - Calculations & Tax Impact
May 10, 2023
5 Minutes
Maximizing Returns: Long-Term Capital Gains on Shares - Calculation and Tax Implications
Delve into the intricate world of long-term capital gains (LTCG) on shares, exploring calculations and tax implications that can significantly impact your investment strategy.
Understanding Long-Term Capital Gains on Shares
Equity shares, known for their high-risk nature, are a popular investment avenue in India. Investors embrace the entrepreneurial risk or reward associated with these instruments, aiming to capitalize on potential returns.
What are Long-Term Capital Gains on Shares?
Long-term capital gains result from the sale of qualifying investments held for over 12 months. In the realm of shares, listed equity shares qualify for LTCG if held for more than a year. Unlisted equity shares, however, require a holding period of 24 to 36 months or more to be considered long-term capital assets.
Investors often prefer long-term assets for the added advantage of tax benefits over short-term capital assets.
Calculating Long-Term Capital Gains on Shares
To calculate LTCG on shares, familiarize yourself with key terms:the
Sale Value: The amount received on the sale of a capital asset, excluding Securities Transaction Tax (STT) and brokerage charges for shares.
Cost of Acquisition: Calculated based on the fair market value on 31st January 2018 for shares acquired before that date. For shares not traded on this date, the highest value on the preceding trading day is considered.
Expenditure Related to Sale or Transfer: Includes registry and brokerage charges, excluding STT charges for shares.
Indexation: Adjusts the cost of acquisition based on the inflation factor, using the Cost Inflation Index (CII) with the base year as 1st April 2001.
Holding Period: The duration for which equity shares were held, starting from the acquisition date and ending on the day preceding the transfer.
Use the following formula for LTCG calculation:
LTCG = Sale Value - (Indexed Cost of Acquisition + Indexed Cost of Asset Improvement + Expenses Incurred)
Illustrations for Calculation of LTCG on Equity Shares
Scenario 1:
Purchase Price: Rs. 500
Fair Market Value (FMV) on 31st Jan 2019: Rs. 700
Sale Price on 1st April 2019: Rs. 850
LTCG: Rs. (850 - 700) = Rs. 150
Scenario 2:
Purchase Price: Rs. 500
FMV on 31st Jan 2019: Rs. 700
Sale Price on 1st April 2019: Rs. 600
LTCG: NIL (Sale value < FMV on 31st Jan 2019)
Scenario 3:
Purchase Price: Rs. 500
FMV on 31st Jan 2019: Rs. 300
Sale Price on 1st April 2019: Rs. 600
LTCG: Rs. (600 - 500) = Rs. 100
Scenario 4:
Purchase Price: Rs. 500
FMV on 31st Jan 2018: Rs. 700
Sale Price on 1st April 2019: Rs. 300
LTCG: Loss of Rs. (300 - 500) = Rs. 200
Tax Implications on LTCG from Shares
Previously exempt under Section 10 (38), LTCG on equity shares now falls under Section 112A. The tax rate is 10% on gains exceeding Rs. 1 Lakh, excluding benefits of indexation and foreign currency gains for non-residents.
Compared to the 15% tax on short-term gains, LTCG on shares remains a favorable investment option.
Long-term Capital Gains Tax: 10% on gains exceeding Rs. 1 Lakh from the sale of equity shares.
Short-term Capital Gains Tax: 15% when STT is applicable.
While this tax aims to address GST collection shortages, investors still find LTCG advantageous despite the introduction of Section 112A. Consider these factors when shaping your investment decisions in light of evolving tax structures.
Maximizing Returns: Long-Term Capital Gains on Shares - Calculation and Tax Implications
Delve into the intricate world of long-term capital gains (LTCG) on shares, exploring calculations and tax implications that can significantly impact your investment strategy.
Understanding Long-Term Capital Gains on Shares
Equity shares, known for their high-risk nature, are a popular investment avenue in India. Investors embrace the entrepreneurial risk or reward associated with these instruments, aiming to capitalize on potential returns.
What are Long-Term Capital Gains on Shares?
Long-term capital gains result from the sale of qualifying investments held for over 12 months. In the realm of shares, listed equity shares qualify for LTCG if held for more than a year. Unlisted equity shares, however, require a holding period of 24 to 36 months or more to be considered long-term capital assets.
Investors often prefer long-term assets for the added advantage of tax benefits over short-term capital assets.
Calculating Long-Term Capital Gains on Shares
To calculate LTCG on shares, familiarize yourself with key terms:the
Sale Value: The amount received on the sale of a capital asset, excluding Securities Transaction Tax (STT) and brokerage charges for shares.
Cost of Acquisition: Calculated based on the fair market value on 31st January 2018 for shares acquired before that date. For shares not traded on this date, the highest value on the preceding trading day is considered.
Expenditure Related to Sale or Transfer: Includes registry and brokerage charges, excluding STT charges for shares.
Indexation: Adjusts the cost of acquisition based on the inflation factor, using the Cost Inflation Index (CII) with the base year as 1st April 2001.
Holding Period: The duration for which equity shares were held, starting from the acquisition date and ending on the day preceding the transfer.
Use the following formula for LTCG calculation:
LTCG = Sale Value - (Indexed Cost of Acquisition + Indexed Cost of Asset Improvement + Expenses Incurred)
Illustrations for Calculation of LTCG on Equity Shares
Scenario 1:
Purchase Price: Rs. 500
Fair Market Value (FMV) on 31st Jan 2019: Rs. 700
Sale Price on 1st April 2019: Rs. 850
LTCG: Rs. (850 - 700) = Rs. 150
Scenario 2:
Purchase Price: Rs. 500
FMV on 31st Jan 2019: Rs. 700
Sale Price on 1st April 2019: Rs. 600
LTCG: NIL (Sale value < FMV on 31st Jan 2019)
Scenario 3:
Purchase Price: Rs. 500
FMV on 31st Jan 2019: Rs. 300
Sale Price on 1st April 2019: Rs. 600
LTCG: Rs. (600 - 500) = Rs. 100
Scenario 4:
Purchase Price: Rs. 500
FMV on 31st Jan 2018: Rs. 700
Sale Price on 1st April 2019: Rs. 300
LTCG: Loss of Rs. (300 - 500) = Rs. 200
Tax Implications on LTCG from Shares
Previously exempt under Section 10 (38), LTCG on equity shares now falls under Section 112A. The tax rate is 10% on gains exceeding Rs. 1 Lakh, excluding benefits of indexation and foreign currency gains for non-residents.
Compared to the 15% tax on short-term gains, LTCG on shares remains a favorable investment option.
Long-term Capital Gains Tax: 10% on gains exceeding Rs. 1 Lakh from the sale of equity shares.
Short-term Capital Gains Tax: 15% when STT is applicable.
While this tax aims to address GST collection shortages, investors still find LTCG advantageous despite the introduction of Section 112A. Consider these factors when shaping your investment decisions in light of evolving tax structures.
Author
Pluto Team
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