Computation of Long-Term Capital Gains – Format & Problems
Sold property bought 10 years ago for ₹1 crore, purchased at ₹30 lakh. Capital gain = ₹70 lakh? Wrong! After indexation & exemptions, it might be just ₹20 lakh or even NIL!
What is Long-Term Capital Gain (LTCG)?
Gain from sale of capital asset held for more than specified period:
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Standard Computation Format
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Key Concepts
1. Indexation
Adjusts purchase price for inflation
Formula:
Indexed Cost = Actual Cost × (CII of sale year / CII of purchase year)
CII = Cost Inflation Index (announced by govt annually)
Recent CII values:
| Financial Year | CII |
|---|---|
| 2001-02 | 100 (base) |
| 2010-11 | 167 |
| 2015-16 | 254 |
| 2020-21 | 301 |
| 2021-22 | 317 |
| 2022-23 | 331 |
| 2023-24 | 348 |
2. Cost of Acquisition
Purchase price + expenses (registration, stamp duty, brokerage)
For inherited assets: Cost to previous owner (step-up basis)
3. Cost of Improvement
Capital expenses after purchase:
- Renovation, extension
- New construction on land
- Major repairs (not routine maintenance)
Not improvement: Repairs, painting, minor fixes
4. Exemptions
Section 54: Sale of residential house → Buy/construct another (₹10 cr limit) Section 54F: Sale of any asset → Buy residential house (conditions apply) Section 54EC: Invest in bonds (NHAI, REC) within 6 months (₹50 lakh limit)
Example 1: Residential Property with Indexation
Mr. Gupta sold his house in Mumbai:
Details:
- Purchase: April 2010 for ₹25,00,000
- Improvement (renovation): 2015 for ₹5,00,000
- Sale: March 2024 for ₹1,20,00,000
- Brokerage: ₹2,00,000
- Stamp duty at purchase: ₹50,000
CII: 2010-11 = 167, 2015-16 = 254, 2023-24 = 348
Computation:
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Indexation Calculations:
Cost of Acquisition:
- Actual cost: ₹25,00,000 + ₹50,000 = ₹25,50,000
- Indexed: ₹25,50,000 × (348/167) = ₹53,14,371
Cost of Improvement:
- Actual: ₹5,00,000
- Indexed: ₹5,00,000 × (348/254) = ₹6,85,039
LTCG Tax: ₹58,69,452 × 20% = ₹11,73,890 (+ 4% cess)
Example 2: Property Sale with Section 54 Exemption
Mrs. Verma (same facts as above) but:
- Invested ₹1,00,00,000 in new residential house within 2 years
Computation:
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Section 54 Calculation:
Formula: (Investment / Net Consideration) × LTCG
= (₹1,00,00,000 / ₹1,18,00,000) × ₹58,69,452 = ₹49,74,952
Tax Saved: ₹49,74,952 × 20% = ₹9,94,990!
Example 3: Equity Shares (Listed)
Rahul sold TCS shares:
Details:
- Purchased: February 2020, 1,000 shares @ ₹2,000 = ₹20,00,000
- STT paid on purchase: ₹200
- Sold: April 2023, 1,000 shares @ ₹3,500 = ₹35,00,000
- STT paid on sale: ₹350
- Holding: 38 months (LTCG)
Computation:
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Tax: 10% on LTCG exceeding ₹1,00,000 (no indexation benefit)
= (₹14,99,800 - ₹1,00,000) × 10% = ₹1,39,980
Note: ₹1 lakh exemption per year (Section 112A)
Example 4: Debt Mutual Fund
Priya invested in debt mutual fund:
Details:
- Purchase: April 2019, 10,000 units @ ₹50 = ₹5,00,000
- Sold: June 2023, 10,000 units @ ₹75 = ₹7,50,000
- Holding: 50 months (LTCG for debt funds)
CII: 2019-20 = 289, 2023-24 = 348
Computation:
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Tax: 20% with indexation = ₹1,48,270 × 20% = ₹29,654
Without indexation: (₹7,50,000 - ₹5,00,000) × 20% = ₹50,000 (higher!)
Indexation benefit: ₹20,346 tax saved
Example 5: Section 54EC Bonds
Mr. Malhotra sold agricultural land (capital asset for him):
Details:
- LTCG: ₹80,00,000
- Invested ₹50,00,000 in NHAI bonds within 6 months
Computation:
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Tax: ₹30,00,000 × 20% = ₹6,00,000
Conditions for 54EC:
- Investment within 6 months of sale
- In specified bonds (NHAI, RECLTD)
- Lock-in: 5 years (cannot sell)
- Max: ₹50 lakh per year
Comparison: LTCG Tax Rates
| Asset | Holding Period | Indexation? | Tax Rate |
|---|---|---|---|
| Listed Equity | 12+ months | ❌ No | 10% (above ₹1L) |
| Unlisted Equity | 24+ months | ✅ Yes | 20% |
| Property | 24+ months | ✅ Yes | 20% |
| Debt Funds | 36+ months | ✅ Yes | 20% |
| Gold ETF | 36+ months | ✅ Yes | 20% |
Practice Problem
Calculate LTCG:
Amit sold a flat in Pune:
- Bought: May 2012 for ₹18,00,000
- Stamp duty: ₹36,000
- Renovation: 2017 for ₹3,00,000
- Sold: January 2024 for ₹75,00,000
- Broker commission: ₹1,00,000
CII: 2012-13 = 200, 2017-18 = 272, 2023-24 = 348
Solution:
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Tax: ₹38,26,096 × 20% = ₹7,65,219
Summary
- LTCG: Asset held > 24 months (property), >12 months (listed equity)
- Indexation: Adjusts cost for inflation (CII), not for listed equity
- Format: Sale price - Expenses - Indexed cost - Indexed improvement = LTCG
- Tax rates: 20% with indexation (most assets), 10% without indexation (equity > ₹1L)
- Exemptions: Section 54 (residential property reinvestment), 54EC (bonds ₹50L max), 54F (any asset → residential)
- Key: Indexation significantly reduces taxable gain!
Quiz Time! 🎯
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Next Chapter: Short-Term Capital Gains Computation! 📉