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How is Long Term Capital Gain Tax Calculated?

13 Mins 03 Jan 2023 0 COMMENT

LTCG = Sale price – Cost of acquisition

The cost of acquisitions in respect of the long term capital asset acquired by the assesse before the 1st day of February, 2018 , shall be deemed to be the higher of:

  1. Actual cost of acquisition of such asset 
  2. Lower of – 
  • Fair Market Value of such asset as on Jan 31, 2018
  • the full value of consideration received or accruing as a result of the transfer of the capital asset
Scenario  Actual Cost on Date of Purchase i.e. January 01, 2017 ( )  Fair Market Value on January 31, 2018 ( )  Sale Price on April 01, 2018 ( )  Cost of Acquisition ( )  LTCG ( ) 
100  200  250  200  250 - 200 = 50 
100 200 150 150 150 - 150 = 0 
C 100 50 150 100 150 - 100 = 50 
D 100 200 50 100 50 - 100 = - 50 
 

Scenario A

First check if the Sale value is higher than the fair value as on Jan 31, 2018. If yes, then the higher of fair market value as on Jan 31, 2018 and actual cost of acquisition will be treated as the Cost of acquisition.
Let's assume:
Shares acquired- 1st of January, 2017
Actual Acquisition Price =Rs. 100,
Fair market value as on Jan 31, 2018= Rs. 200 ( This is the highest trading price as on Jan 31, 2018)
Sale value on 1st of April, 2018 = Rs. 250.
Here, since the sale value as on 1st April 2018 is higher than the FMV as on 31st Jan, the cost of acquisition will be higher of 200 and 100, which comes to Rs.200.
In this case, the LTCG will be 250-200= Rs.50

Scenario B

If the Sale value is lower than the fair value as on Jan 31, 2018. If yes, then cost of acquisition will be the higher of sale value and actual cost of acquisition.
Let's assume:
Shares acquired- 1st of January, 2017
Actual Acquisition Price =Rs. 100
Fair market value as on Jan 31, 2018= Rs. 200
Sale value on 1st of April, 2018 = Rs. 150.
Here, since the sale value as on 1st April 2018 is lower than the Fair market value as on 31st Jan, the cost of acquisition will be higher of sale value and actual cost of acquisition i.e. higher of 150 and 100, which is Rs.150 will be considered as the cost of acquisition
In this case, the LTCG will be 150-150= Rs.0

Scenario C

First check if the Sale value is higher than the fair value as on Jan 31, 2018. If yes, then the higher of fair market value as on Jan 31, 2018 and actual cost of acquisition will be treated as the Cost of acquisition.
Let's assume:
Shares acquired- 1st of January, 2017
Actual Acquisition Price =Rs. 100,
Fair market value as on Jan 31, 2018= Rs. 50 ( This is the highest trading price as on Jan 31, 2018)
Sale value on 1st of April, 2018 = Rs. 150.
Here, since the sale value as on 1st April 2018 is higher than the FMV as on 31st Jan, the cost of acquisition will be higher of 150 and 100, which comes to Rs.150.
In this case, the LTCG will be 150-100= Rs.50

Scenario D

Let's take another example in which, sale value is less than the actual cost of acquisition.
Shares acquired- 1st of January, 2017
Actual Acquisition Price =Rs. 100
Fair market value as on Jan 31, 2018= Rs. 200
Sale value on 1st of April, 2018 = Rs. 50.
In this case, the sale value is also lower than the fair market value as on Jan 31, 2018. Hence the cost of acquisition will be higher of actual cost of acquisition and the sale value, i.e. Rs 100 and Rs.50. Hence cost of acquisition will be Rs.100.
So there will be long term capital loss of Rs. 50 (Rs.50 minus Rs.100)
For Example:

1. Long Term Capital Gain: Say on 01-01-2017 you had bought 100 shares of ABC at Rs.100. You are now selling these shares on 01-04-2018 at Rs.250. Assuming the Fair Market Value (FMV) as on 01-01-2018 was Rs 200, The Cost of Acquisition will be considered as Rs 200. Sale transaction will qualify for long-term capital gain tax since purchase transaction took place more than one year ago. Tax rate for short term and long term capital gains are 17.94% and 11.96% respectively. Actual TDS is calculated as follows:

(a) Value of sale transaction = 100(shares)*250(price) =25000
(b) FMV as on Jan 31, 2018 = 100(shares)*200(FMV) = 20000
(c) TDS blocked on sell executions = 25000 * 17.96% = 4485
(d) Trading limit available post sell execution = (a) – (c) = 20515
(e) Amount withheld against TDS in case Long term tax is proved = {(a) – (b)}*11.96 % = 598
(f) Excess amount to be refunded = (c) – (e) = 3887


2. Short Term Capital Gain:

a. Day 1: Net Loss
Day 01, Date 01-04-2017 : Say on 04-12-2016 you had bought 100 shares of ACC at Rs.1500 and 50 shares of INFTEC at Rs 1200. You are now selling these shares on 01-04-2017 at Rs. 1000 and Rs.1500 respectively. Sale transaction will qualify for Short-term capital gain tax since purchase transaction took place less than one year ago. Tax rate for short term and long term capital gains are 17.94 % and 11.96% respectively. Actual TDS is calculated as follows:

(a) Value of sale transactions
ACC sale transaction = 100(shares)*1000(price) =100000
INFTEC sale transaction = 50(shares)*1500(price) =75000
(b) Amount withheld against the above transactions
ACC TDS = (a)*17.94 % = 17940
INFTEC TDS = (a)*17.94 % = 13445
(c) Limit available immediately on sell execution = (a) - (b) = 143615
(d) Actual tax to be deducted at source considering the Profit / Loss on transactions based on cost of acquisition & adjusting Carry Forward loss, if any:
={(1000-1500)*100 +(1500-1200)*50}*17.94% =0
NIL TDS above since there is Net loss of Rs. 35000/- (Rs. 50000 Loss on ACC & Rs.15000 Profit on INFTEC)
(e) Amount withheld in excess = (b) - (d) =31385
(f) Increase in limits on adding back the excess withheld amount = (e) =31385
(g) Carried Forward Loss = -35000


b. Day 2: Carry Forward of Net loss & set off with Net profit of Day 2
Day 02 and date 02-04-2011 say on 01-10-2010 you had bought 100 shares of STABAN at Rs.600 and 100 shares LARTOU at Rs 1100. You are now selling these shares on 02-04-2011 at Rs.750 and Rs.1400 respectively. Sale transaction will qualify for Short-term capital gain tax since purchase transaction took place less than one year ago. Tax rate for short term and long term capital gains are 17.94 % and 0% respectively. Actual TDS is calculated as follows:


(a) Value of sale transactions
STABAN sale transaction = 100(shares)*750(price) =75000
LARTOU sale transaction = 100(shares)*1400(price) =140000
(b) Amount withheld against the above transactions
STABAN TDS = (a)*17.94% = 13445
LARTOU TDS = (a)*17.94% = 25116
(c) Limit available immediately on sell execution = (a) - (b) = 176439
(d) Actual tax to be deducted at source considering the Profit / Loss on transactions based on cost of acquisition & adjusting Carry Forward loss, if any from Day 1:
=[{(750-600)*100 +(1400-1100)*100}+(-35000)]*17.94% =1794 TDS on Net profit of Rs.10000
(e) Amount withheld in excess = (b) - (d) =36767
(f) Increase in limits on adding back the excess withheld amount = (e) = 36767
(g) Carried Forward Loss = 0

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