LTCG Tax Calculation: Examples & How to Calculate Capital Gains

Finance Minister Mr. Arun Jaitley, in his Union Budget 2018 speech on 1^st February 2018, re-introduced LTCG tax on stocks. Investors will have to pay 10 per % on profit gains exceeding ₹ 1 lakh made from the sale of stocks or equity oriented mutual fund schemes held for over one year.

Examples of LCTG Tax Calculations

Case 1 : If stocks or equity mutual fund are sold before 31^st march 2018

If you bought a share for ₹ 1,000 and have held it for more than 1 year (to qualify for LTCG) and say the fair market value (FMV) of the asset on 31.01.2018 is ₹ 1,500 and you sell it for ₹ 1,300 on 1-April-2018 then the LTCG is calculate as follows:

No LCTG tax to be paid in this case. As if you sell before March 31, 2018, a stock or an equity mutual fund that has been held for more than a year, you do not pay tax.

CASE-1 Pre-budget Post-budget Date of Purchase 01-Jan-17 01-Jan-17 Purchase Price (per unit) ₹ 1,000 ₹ 1,000 Date of Sale 25-Mar-18 25-Mar-18 Sale Price (per unit) ₹ 1,500 ₹ 1,500 FMV (per unit) on 31 Jan 2018 ₹ 1,300 ₹ 1,300 No. of Units 1 1 Computation of taxes on LTCG Sale consideration ₹ 1,500 ₹ 1,500 Less: Cost of acquisition considered ₹ 1,000 ₹ 1,300 Capital Gains/Loss ₹ 500 ₹ 200 Exempted ₹ -500 ₹ -200 Net Capital Gains Tax at 10%

Case 2 : If stocks are sold after 31^st march 2018 and FMV is more than purchase value

If you bought a share for ₹ 1,000 and have held it for more than 1 year and say FMV of the asset on 31.01.2018 is ₹ 1,300 and you sell it for ₹ 1,500 on 1-April-2018 then the LTCG is calculate as follows:

Cost of acquisition of this share (purchased before 01-Feb-2018) = Higher of Cost of actual Purchase and FMV.

The actual purchase price =  ₹1,000 and FMV as on 31-Jan-2018 = ₹ 1,300

So, cost acquisition for LTCG purpose is ₹ 1,300

Hence, LTCG = Selling Price – Cost of acquisition

=  ₹ 1,500 – ₹ 1,300 = ₹ 200

You would (for tax purposes) have realised LTCG ₹ 200.

CASE-2 Pre-budget Post-budget Date of Purchase 01-Jan-17 01-Jan-17 Purchase Price (per unit) ₹ 1,000 ₹ 1,000 Date of Sale 01-Apr-18 01-Apr-18 Sale Price (per unit) ₹ 1,500 ₹ 1,500 FMV (per unit) on 31 Jan 2018 ₹ 1,300 ₹ 1,300 No. of Units 1 1 Computation of taxes on LTCG Sale consideration ₹ 1,500 ₹ 1,500 Less: Cost of acquisition considered ₹ 1,000 ₹ 1,300 Capital Gains/Loss ₹ 500 ₹ 200 Exempted ₹ -500 Net Capital Gains ₹ 200 Tax at 10% ₹ 20

Case 3 : If stocks are sold after 31^st march 2018 and FMV is less than purchase value

If you bought a share for ₹ 1,000 and have held it for more than 1 year and say FMV of the asset on 31.01.2018 is ₹ 500 and you sell it for ₹ 1,500 on 1-April-2018 then the LTCG is calculate as follows:

Cost of acquisition of this share (purchased before 01-Feb-2018) = Higher of Cost of actual Purchase and FMV.

The actual purchase price =  ₹1,000 and FMV as on 31-Jan-2018= ₹ 500

So, cost acquisition for LTCG purpose is ₹ 1,000

Hence, LTCG = Selling Price – Cost of acquisition

=  ₹ 1,500 – ₹ 1,000 = ₹ 500

You would (for tax purposes) have realized LTCG ₹ 500.

CASE-3 Pre-budget Post-budget Date of Purchase 01-Jan-17 01-Jan-17 Purchase Price (per unit) ₹ 1,000 ₹ 1,000 Date of Sale 01-Apr-18 01-Apr-18 Sale Price (per unit) ₹ 1,500 ₹ 1,500 FMV (per unit) on 31 Jan 2018 ₹ 500 ₹ 500 No. of Units 1 1 Computation of taxes on LTCG Sale consideration ₹ 1,500 ₹ 1,500 Less: Cost of acquisition considered ₹ 1,000 ₹ 1,000 Capital Gains/Loss ₹ 500 ₹ 500 Exempted ₹ -500 Net Capital Gains ₹ 500 Tax at 10% ₹ 50

Case 4: If stocks are sold after 31^st march 2018 and Selling value is less than FMV but more than purchase value

If you bought a share for ₹ 1,000 and have held it for more than 1 year and say the fair market value (FMV) of the asset on 31.01.2018 is ₹ 1,500 and you sell it for ₹ 1,300 on 1-April-2018 then the LTCG is calculate as follows:

Cost of acquisition of this share (purchased before 01-Feb-2018) = Higher of Cost of actual Purchase and FMV.

The actual purchase price =  ₹1,000 and FMV as on 31-Jan-2018= ₹ 1,500

So, cost acquisition for LTCG purpose is ₹ 1,500

Hence, LTCG = Selling Price – Cost of acquisition

=  ₹ 1,300 – ₹ 1,500 = ₹ -200

Since you incurred a loss of ₹ -200, no LCTG will be applicable.

CASE-4 Pre-budget Post-budget Date of Purchase 01-Jan-17 01-Jan-17 Purchase Price (per unit) ₹ 1,000 ₹ 1,000 Date of Sale 01-Apr-18 01-Apr-18 Sale Price (per unit) ₹ 1,300 ₹ 1,300 FMV (per unit) on 31 Jan 2018 ₹ 1,500 ₹ 1,500 No. of Units 1 1 Computation of taxes on LTCG Sale consideration ₹ 1,300 ₹ 1,300 Less: Cost of acquisition considered ₹ 1,000 ₹ 1,500 Capital Gains/Loss ₹ 300 ₹ -200 Exempted ₹ -300 Net Capital Gains ₹ -200 Tax at 10% NIL

Case 5: If stocks are sold after 31^st march 2018 and Selling value is more than FMV but less than purchase value

If you bought a share for ₹ 1,000 and have held it for more than 1 year and say the fair market value (FMV) of the asset on 31.01.2018 is ₹ 500 and you sell it for ₹ 800 on 1-April-2018 then the LTCG is calculate as follows:

Cost of acquisition of this share (purchased before 01-Feb-2018) = Higher of Cost of actual Purchase and FMV.

The actual purchase price =  ₹1,000 and FMV as on 31-Jan-2018= ₹ 500

So, cost acquisition for LTCG purpose is ₹ 1,000

Hence, LTCG = Selling Price – Cost of acquisition

=  ₹ 800 – ₹ 1000 = ₹ -200

Since you incurred a loss of ₹ -200, no LCTG will be applicable.

CASE-5 Pre-budget Post-budget Date of Purchase 01-Jan-17 01-Jan-17 Purchase Price (per unit) ₹ 1,000 ₹ 1,000 Date of Sale 01-Apr-18 01-Apr-18 Sale Price (per unit) ₹ 800 ₹ 800 FMV (per unit) on 31 Jan 2018 ₹ 500 ₹ 500 No. of Units 1 1 Computation of taxes on LTCG Sale consideration ₹ 800 ₹ 800 Less: Cost of acquisition considered ₹ 1,000 ₹ 1,000 Capital Gains/Loss ₹ -200 ₹ -200 Exempted Net Capital Gains ₹ -200 Tax at 10% NIL

Case 6: If stocks are sold after 31^st march 2018 and FMV is equal to purchase value and both are more than selling value

Here, as both Cost of acquisition of this share and FMV are same, so no confusion on selecting higher value and calculate LCTG tax as above.

CASE-6 Pre-budget Post-budget Date of Purchase 01-Jan-17 01-Jan-17 Purchase Price (per unit) ₹ 1,000 ₹ 1,000 Date of Sale 01-Apr-18 01-Apr-18 Sale Price (per unit) ₹ 800 ₹ 800 FMV (per unit) on 31 Jan 2018 ₹ 1,000 ₹ 1,000 No. of Units 1 1 Computation of taxes on LTCG Sale consideration ₹ 800 ₹ 800 Less: Cost of acquisition considered ₹ 1,000 ₹ 1,000 Capital Gains/Loss ₹ -200 ₹ -200 Exempted Net Capital Gains ₹ -200 Tax at 10% NIL

The impact is not very bad because of provision which allows the cost of acquisition to be taken as the market value on 31^st January 2018 (as we have seen in above calculations). This reduces the amount of capital gains that would face the 10% tax. Essentially for a person selling after 31^st March, 2018, only the actual gains after 31^st  January, 2018 would be taxed. However, obviously a 10% tax has been levied on the capital gains calculated as above which was not there earlier, so will definitely hurt the equity oriented investors. But our stock exchange has become matured enough over the last couple of years, to attract the foreign and retail investors.

Happy investing!

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