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Long term capital gain

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In simple words, gain arising on transfer of long-term capital asset is termed as long-term capital gain.

Now, you have to understand what long term capital assets are.

Capital asset can be short term or long term based on its period of holding.

Any capital asset held by a person for a period of more than 36 months immediately preceding the date of its transfer will be treated as long-term capital asset. We have following exceptions;

Shares (equity or preference) which are listed in a recognized stock exchange in India

  • Units of equity oriented mutual funds
  • Listed securities like debentures;
  • Government securities;
  • Units of UTI; and
  • Zero Coupon Bonds,

For these above exceptions, the period of holding to be considered is 12 months instead of 36 months.

In case of unlisted shares, the period of holding to be 24 months instead of 36 months. Likewise, for immovable property (being land or building or both) the period of holding is also 24 months instead of 36 months.

Remember, a depreciable asset is always considered as a short term asset.

For income tax purposes, the first step in order to calculate capital gain tax is first to know the type of capital asset you are holding. Tax rates for long term and short term capital assets are different.

Format used to compute long term capital gain in India;

ParticularsAmount In Indian Rupees
Full value of consideration (i.e., Sales consideration of asset)XXXXXXXX
Less: Expenditure incurred wholly and exclusively in connection with transfer of capital asset (E.g., brokerage, commission, etc.)(XXXXXXX)
Net sale considerationXXXXXXX
Less: Indexed cost of acquisition (*)(XXXXXXX)
Less: Indexed cost of improvement, if any (*)(XXXXXXX)
Long-Term Capital GainXXXXXXX

Formula for Indexed cost of acquisition;

Cost of acquisition × Cost inflation index of the year of transfer of capital asset

 Formula for Cost inflation index;

Cost of improvement × Cost inflation index of the year of transfer of capital asset Cost inflation index of the year of improvement