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!

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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)

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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:

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)

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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:

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!

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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:

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)

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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:

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

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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:

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

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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%

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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:

Tax: ₹38,26,096 × 20% = ₹7,65,219

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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!

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Quiz Time! 🎯

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Next Chapter: Short-Term Capital Gains Computation! 📉