Calculate Short-Term and Long-Term Capital Gains Tax on Shares

Capital gains are taxable or in other words, the capital gains come under tax net and an investor - individual or company is liable to pay tax after selling an asset. However, the entity has to pay capital gains tax only if the asset is being sold. Capital gains are taxable.

What is Short Term Capital Gain?

Short term capital gain refers to any sort of capital gain or profit which a person received after the sale of short term capital assets. Assets such as shares which are listed on recognised stock exchange and are hold for below 12 months are considered as short term capitals.

Calculation of Capital Gain on Equity Shares

Computation of capital gain on equity shares is quite different for long term as well as short term assets.

The following are the few factors which are considered in calculation of capital gain on equity shares:

Sale Value of Assets

It is the amount gained when a certain asset is sold, whether the transaction is short- or long-term. Regarding equity shares, the sale value is the gross selling price less brokerage fees and the securities transaction tax.

Cost of Asset Acquisition

The cost of asset acquisition is the buying price of an asset which is sold which comprise of brokerage charges that is incurred at the time of purchase of asset. The following are the steps which highlights the important aspects on the cost of asset acquisition:

1. Fair market value of the investment
2. Then the amount is differentiated to the original value of the asset and the lesser amount between both
3. The value is compared with the purchase value of an investment. The higher value is considered as the acquisition of an asset.

Expenses Incurred Due to Sale or Transfer

These expenses are registry charges and brokerage charges along with various other expenses incurred during the sale of asset. For equity shares with STT charges at the sale transaction, the charges are added in the calculation of capital gain on equity shares.

Holding Period

Holding period is given by the number of months or days in case of Short Term Capital Gains for which investors held the asset. The holding period will start from the acquisition date of an asset and continues to the date preceding that of asset transfer.

How to Calculate Long-term Capital Gains Tax on Shares?

Computation of LTCG on Shares

LTCG = Sale value of long term equity assets - (the cost of asset acquisition + expenses incurred owing to their sale or transfer)

Example of LTCG on Shares

Let’s consider that Mr.X bought 100 shares of a listed company in October 2018. Each share costs Rs.120 per share and paid the total amount of Rs.12,000 for these. Mr.X then sold all his shares for Rs.150 per share on March 2018 after one year and five months at Rs.15,000.

In such case, in order to calculate the LTCG on shares bought, the indexed purchase price of the asset has to be calculated.

Here's the  Cost Inflation Index (CII) from 2016-17 to 2022-23:

Hence, as per to the table mentioned above, the indexed purchase price of the share in the given example will be = Rs.(12,000 *271/ 264) Rs.12,318.

Thus, LTCG of Mr.X is based on the numbers given below:

1. Sales value – Rs.15,000
2. Brokerage value at 0.5% - Rs.75

1. Indexed price of purchase – Rs.12,318

LTCG on equity shares bought = Rs.15,000 – Rs.(12,318 +75) = Rs.2607

How to Calculate Short-Term Capital Gains Tax on Shares?

Computation of STCG on Shares

STCG = Sales value of short term equity assets - (cost of acquisition of asset + expenses incurred from the transfer or sale of the assets).

Example of SCTG on Share

Let us consider that Mr.Y purchased 200 shares of a listed company in October 2016. Each share cost Rs.150. So, the total amount of all the shares is Rs.30,000. He then sold all the shares at a cost of Rs.180 per share on March 2017 after five months and total amount is Rs.45,000.

Here, the short term capital gains made by Mr.Y will be given by:

1. Sales value- Rs.45,000

1. Brokerage at the rate of 0.5% - Rs.225
2. Purchase price of asset- Rs.30,000

Thus, STCG on the shares bought by Mr.Y = Rs.45,000 - (Rs.30,000 + Rs.225) = Rs.14,775

How to calculate Capital Gains on Shares?

Short-term capital gains can be computed by subtracting the following 3 items from the total value of sale:

• Brokerage or expenditure incurred in connection with the sale of the asset
• Purchase price of the asset

Sandeep Venkatesh bought 250 shares of a listed company in October 2015 at a cost of Rs. 155 per share, paying a total of Rs. 38,750. He sold them for Rs. 192 per share in March 2016, after 5 months, at Rs. 48,000. Let us see how much his short-term capital gains will be.

1. Full sales value - Rs. 48,000
2. Brokerage at 0.5% - Rs. 240
3. Purchase price - Rs. 38,750

Therefore short-term capital gain made by Sandeep will be: Rs. 48,000 - (Rs. 38,750+ Rs. 240) = Rs. 9,010

Long-term capital gains can be computed by subtracting the following 3 items from the total value of sale:

• Brokerage or expenditure incurred in connection with the sale of the asset
• Indexed purchase price of the asset

Indexed cost is arrived at when the price is adjusted against the rise in inflation in the asset's value.

Union Budget 2020-21- 10% tax levied on long-term capital gains over Rs.1 lakh

In the budget 2020, The FM proposed to impose tax on the long term capital gains arising from transfer of listed equity shares, units of equity-oriented fund and unit of a business trust which were exempted from tax earlier.

According to the new reform, all the capital gains that are more than Rs.1 lakh in amount will be charged at 10% tax rate without any inflation indexation benefit. However, the gains made on and before 31st January 2018 will be exempted from this new rule.

Tax Implications of Capital Gains on Foreign Shares

Capital gains from foreign investment are taxable twice, in Indian and once in the country where these shares are held. Under the double taxation, the long term capital gains from foreign shares is taxable at 20%.

On the other hand the short term capital gains are taxable at 30%. Having said that, investors can ignore the double taxation liability under Section 91 under the Income Tax Act, 1961.