long term capital gains ltcg tax

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 asset is transferred. 

Budget 2024 Updates

• With effect from FY 24-25, there will be only two holding periods, 12 months and 24 months. For all listed securities, the holding period is 12 months, and for all other assets, it is 24 months. 
• From FY 24-25, the limit on the exemption of Long Term Capital Gains on the transfer of equity shares or equity-oriented units or units of Business Trust is proposed to be increased from Rs.1 Lakh to Rs.1.25 lakh per year. The rate at which it is taxed is also increased from 10% to 12.5%. In the case of other financial and non-financial assets, the tax on Long Term Capital Gain is proposed to be reduced from 20% to 12.5%. The indexation benefit available on the transfer of other long-term assets is proposed to be removed.
• However, for sale of land and building made from 23rd July 2024 will attract a tax rate of 12.5% without indexation benefit or a 20% tax rate with the indexation benefit at the option of taxpayer, if such property has been acquired before 23rd July, 2024. For sale of properties acquired on or after 23rd July, 2024, the tax rate will be 12.5% without indexation which are qualified as long term assets.

Assets are called as long-term if held for more than 24 months, except for certain exceptions where the period is shorter: listed securities and equity-oriented funds qualify if held for more than 12 months, while other assets 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. Indexation benefit has been removed for transfer made after 23rd July, 2024.

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.

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:

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. 1.25 lakh in a financial year are subject to a 12.5% tax rate from 23rd July, 2024. For transfers made up to 22nd July, 2024, the tax rate of 10% will be applicable.

2. Other assets (such as real estate, land, unlisted shares, etc.): 

• For Transfers made on or after 23rd July, 2024 (except for land and building) - LTCG is taxed at 12.5% without taking the indexation benefit.
• For Transfers made on or before 22nd July, 2024 - LTCG is taxed at 20% after taking the indexation benefit. 
• In case of transfer of land or buildings acquired before July 23, 2024, taxpayers have the option to pay tax at either a rate of 12.5% without indexation benefits or 20% with indexation benefits.

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. As mentioned above the rates will be 20% for transfer made on or before 22nd July, 2024 after indexation benefit. For subsequent transfers, the tax rate shall be 12.5% without the indexation benefit. There are certain exemptions available which will further reduce your LTCG chargeable to tax.

With further benefit, in case of a sale of land and building made after 23rd July, 2024, taxpayer will have the option to pay tax at 20% with indexation benefit and at 12.5% without indexation benefit if acquisition of such land/building has been made on or before 22nd July, 2024.

Click here to learn more about the LTCG on property. 

Long-term Capital Gain Example (With Indexation)

John bought a house in 2005 for Rs. 20,00,000. He sold it in June 2024 for Rs. 65,00,000. Calculate the taxable capital gain assuming the Cost Inflation Index (CII) for 2005-06 is 117 and for 2024-25 is 363. 

Indexation benefit has been considered in the above example as sale is made before 23rd July, 2024. The tax on said transfer will be applicable at the rate of 20%.

Long-term Capital Gain Example (Without Indexation)

John bought a house in 2005 for Rs. 20,00,000. He sold it in August 2024 for Rs. 65,00,000. 

Indexation benefit has not been considered in the above example as sale is made after 23rd July, 2024. The tax on said transfer will be applicable at the rate of 12.5%.

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