Computation of Short Term & Long Term Capital Gain

Capital Gain

At the time of Sale of an Asset, tax is liable to pay on gains earned on the sale of asset. Such gains could either be short term capital gain or long term capital gain.

Classification of Capital Gain

Short Term Capital Gain (STCG)

Capital asset held less than 36 months shall be deemed as short term capital asset. However, the following asset held less than 12 months shall be treated as short term assets:

  1. Equity or preference shares in a company which are listed in any recognized stock exchange in India.
  2. Other Listed Securities.
  3. Units of UTI.
  4. Units of equity oriented funds.
  5. Zero Coupon Bonds.
  • Long Term Capital Gain (LTCG)
  • Capital asset held more than 36 months or 12 months, as the case may be, is treated as long term capital asset.

Computation of Short Term Capital Gain

Gains on sale of shot term capital asset shall be computed in the following manner:-

Full Value of Consideration                                                              XXX

(Less)  Cost of Acquisition                                                               XXX

(Less)  Cost of Improvement                                                           XXX

Gross STCG                                                                                       XXX

(Less)  Exemption (if any) available u/s 54B/54D/54G/54GA       XXX

Net STCG                                                                                           XXX

Computation of Long Term Capital Gain

Gains on sale of Long Term Capital Asset shall be computed in the following manner:-

Full Value of Consideration                                                              XXX

(Less)  Indexed Cost of Acquisition                                                 XXX

(Less)  Indexed Cost of Improvement                                             XXX

Gross LTCG                                                                                       XXX

(Less)  Exemption (if any) available u/s 54B/54D/54G/54GA       XXX

Net LTCG                                                                                          XXX

Rates of Tax on Capital Gains

Short Term Capital Gains
  1. Short term capital gains shall be included in the gross total income of the taxpayer and will be taxed at the normal rates.
  2. STCGs arising from transfer of equity shares, units of an equity oriented funds or a unit of a business trust which is chargeable to securities transaction tax shall be taxed at 15% under Section 111A.
Long Term Capital Gains
  1. Long term capital gains are subject to tax at 20%
  2. LTCGs from transfer of listed securities, units or zero coupon bonds shall be taxable at lower of the following
    1. 20% after taking benefit of indexation or
    2. 10% without taking benefit of indexation.
  3. Long term capital gains arising from transfer of listed securities, units of equity oriented or a unit of business trust which is chargeable to STT shall be exempt from tax under section 10(38).

In case loss on the sale of an asset, the capital loss can be set-off against other Capital Gains in that year. If the loss cannot be set-off against capital gain in that year, it can be carried forward for next 8 years and set-off in the future years. However, lose can only be carried forward if the return was filed before due date.

Indexed Cost =Actual Cost*Cost Inflation Index of the Year of Sale/Cost Inflation Index of the Year of Purchase.

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