How to Compute LTCG (Long-Term Capital Gains)?

A successful alternative with the potential for expansion and wealth building is a stock investment. But, calculating long-term capital gains (LTCG) could take some time. This article gives a good knowledge and awareness on the computation of LTCG. Let’s look at long-term capital gains calculation methods!

LTCG or Long-Term Capital Gains

Personal goods acquired in conjunction with a business or profession are referred to as capital assets. Bonds, mutual funds, jewelry, patents, and trademarks are typical capital assets. Personal use furniture, clothing, and rural agricultural property are not considered capital assets.

According to the Income Tax Act, 1961 profits from long-held assets like stocks, bonds, real estate, etc are subjected to the long-term capital gains tax, or LTCG tax, which has different short-term and long-term holding periods for each asset.

Categorization of Capital Assets

The following table accurately shows how long- and short-term capital gains are taxed when those considered as capital assets.

LTCG Tax Calculator 

A useful tool that displays your long-term capital gains and tax liability for equities-oriented mutual funds and listed equity shares is the long-term capital gains calculator or LTCG Calculator.

The holding period, purchase price, and sale price of the equity-oriented fund are entered in the formula box of the LTCG Calculator. The calculator will show the taxable long-term or short-term capital gain based on the holding period.

How to Operate LTCG Calculators?

With the help of this example, you may comprehend how an LTCG calculator functions. In May 2018, you paid Rs 1,000 for 200 shares of XYZ Company Ltd. In January 2020, you sold all 200 shares for Rs. 1,800 each.

You’ve owned the stock for longer than a year. LTCG is the Rs. 1,60,000 profit (200*1800 – 200*1000).

You must pay LTCG tax on gains exceeding Rs 1 lakh in a fiscal year. The LTCG tax is payable on Rs. 60,000. Using 10%, (Rs 1,60,000 – Rs 100,000). You have to pay Rs 6,000 in LTCG tax. (Rs 60,000@10%). In January 2019, when the share price was Rs 1,500, you sold 200 shares. Your 200 shares were purchased in May 2018 for Rs 2,000,000. Less than a year has passed since you acquired the shares. Short-term capital gains are the profit of Rs. 1,000,000 ($200*1500 – $200*1000).

The STCG (short-term capital gains) of Rs 1,000,000 * 15% = Rs 15,000 must be taxed at the 15% rate.

During the 2018 Union Budget, the long-term capital gains tax on equity-oriented securities and instruments was introduced. The new regulation was in effect for any transactions completed on or after April 1, 2018.

Winding Up Note

Investors need to understand the tax implications of their investments, one of which is the computation of LTCG, which is the profit earned from the selling of shares held for more than a year. Mastering the LTCG calculation can help investors maximize returns and reduce tax liabilities. It is thoroughly examined the procedure for calculating Long Term Capital Gains in this essay. With a little experience, investors may become experts in their own right and fully benefit from the tax advantages of long-term investments.

In case of any query regarding how long-term capital gain tax is calculated, feel free to connect with our legal experts at Legal Window at 72407-51000.