Computation of Long Term Capital Gains (LTCG) in different scenarios

Computation of Long Term Capital Gains (LTCG) in different scenarios

In the Union Budget 2018, the government of India has introduced a 10% Long Term Capital Gains Tax (LTCG) on equity (shares) and equity mutual fund. Now, the income from the long term investment into equity or equity mutual funds is not tax-free if the amount of gains exceeded Rs. 1 lakh. However, the profit earned up to January 31, 2018, will not be taxed. The new rules are applicable to the sale takes place after April 1, 2018.

Computation of Long Term Capital Gains (LTCG)

After the Union budget 2018 announcement, the Central Board of Direct Taxes (CBDT) has explained how computation of LTCG would be in different scenarios. Here is the summary of the four different scenarios illustrated by Central Board of Direct Taxes (CBDT).

Computation of Long Term Capital Gains (LTCG) in Scenario #1

In this scenario, you purchased an equity share on January 1, 2017 at Rs. 100. Its fair market value is Rs. 200 on January 31, 2018. You sold your equity share on April 1, 2018 at Rs. 250. Here the actual cost of acquisition is less than the fair market value as on January 31, 2018, the fair market value of Rs. 200 will be taken as the cost of acquisition and the long-term capital gain will be Rs. 50 (Rs. 250 – Rs. 200).

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Computation of Long Term Capital Gains (LTCG) in Scenario #2

In this scenario, you purchased an equity share at Rs. 100 on January 1, 2017. Your share’s fair market value is Rs. 200 on January 31, 2018. You sold your equity share at Rs. 150 on April 1, 2018. Here the actual cost of acquisition is less than the fair market value as on January 31, 2018. But, the sale value of the share is also less than the fair market value as on January 31, 2018. Therefore, the sale value of Rs. 150 will be taken as the cost of acquisition and the long-term capital gain will be NIL (Rs. 150 – Rs. 150).

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Computation of Long Term Capital Gains (LTCG) in Scenario #3

Here, you purchased an equity share on January 1, 2017 at Rs. 100. The fair market value of your share is Rs. 50 on January 31, 2018. You sold your share on April 1, 2018 at Rs. 150. In this case, the fair market value as on January 31, 2018 is less than the actual cost of acquisition. Therefore, the actual cost of Rs. 100 will be taken as actual cost of acquisition in this case and the long-term capital gain will be Rs. 50 (Rs. 150 – Rs. 100).

Computation of Long Term Capital Gains (LTCG) in Scenario #4

In this scenario the equity share is purchased on January 1, 2017 at Rs. 100. The fair market value is Rs. 200 on January 31, 2018. The share is sold on April 1, 2018 at Rs. 50. Here, the actual cost of acquisition is less than the fair market value as on January 31, 2018. The sale value of the share is less than the fair market value as on January 31, 2018 and also the actual cost of acquisition. Therefore, the actual cost of Rs. 100 will be taken as the cost of acquisition and the long-term capital loss will be Rs. 50 (Rs. 50 – Rs. 100) in this case.

Hope now you will be able to compute the Long Term Capital Gains (LTCG) on your investment in equity and equity mutual funds.

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Computation of Long Term Capital Gains (LTCG) in different scenarios