LTCG and STCG on Listed Equity shares or Equity oriented Mutual funds

As you know, Capital Gain on shares will arise in the event of sale of shares at profit and likewise capital loss on shares will arise in the event of sale of shares at loss.

Capital Gain or loss on shares can be Long term or Short term. Let’s understand this in detail.

First of all, please understand that in case of shares, if period of holding of shares( it is the time you hold your share before selling) is one year or less, it will be called as short term capital asset. Samewise, if shares are held for more than one year before you sell them, it will be treated as Long term capital assets. Capital Gain or loss on short term capital assets are called STCG/STCL and capital gain or loss on long term capital assets are called LTCG/LTCL.

Short Term Capital Gain:

Short-term capital gain is computed by deducting the following from the sale value of shares:

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

Let’s take an example to understand this, Mr. X 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. He paid Brokerage Rs. 240. Here, his short-term capital gain would be as under:

Total Sale value =   Rs. 48000

Less: Brokerage =  Rs. 240

Less: Purchase price =    Rs. 38750

STCG =  Rs. 9010

How to calculate tax on above short Term Capital Gain:

There is a 15% tax on short-term capital gains that fall under Section 111A of the Income Tax Act.(It includes equity shares, equity-oriented mutual-funds, listed on recognised stock exchange, and falling under the securities transaction tax.

Tax on STCG = Rs. 9010*15% = Rs. 1352

Long Term Capital Gain:

Long-term capital gain is computed by deducting the following from the sale value of shares:

• Brokerage or expenditure incurred in connection with the sale of the asset
• Indexed cost of the asset (Indexed costis arrived at when the price is adjusted against the rise in inflation in the asset’s value. Government releases Cost Index Inflation ( CII) , through which the indexed cost can be estimated. Formula is: Cost of purchase * CII of the year of sale /CII of the year of purchase)

Let’s take an example to understand this, Mr. X bought 250 shares of a listed company in October 2014 at a cost of Rs. 145 per share, paying a total of Rs. 36,250. He sold them for Rs. 192 per share in March 2016, after 17 months, at Rs. 48,000. He paid Brokerage Rs. 240. His LTCG would be as under:

Total Sale value =  Rs. 48000

Less: Brokerage =  Rs. 240

Less: Indexed purchase price = Rs. 38750( = 36250 x 1081 / 1024 =  Rs.38268)

LTCG = Rs. 9492

How to calculate tax on above Long Term Capital:

Long-term capital gains that fall under Section 10(38) of the Income Tax Act were not taxable before. (It includes equity shares, equity-oriented mutual-funds, listed on recognised stock exchange, and falling under the securities transaction tax However, in Union Budget 2018-19, they are made subjected to tax  at 10% without indexing if the amount of gain exceeds Rs.1 lakh. However, all the gains up to 31st January 2018 is still exempt from tax.  Further, this tax will be applicable where shares are sold after 1st April, 2018.

Example: You invested Rs 2 lakh in stocks or equity funds in March 2016. On 31 Jan 2018, the value of the investment was Rs 4 lakh. You sell the investment for Rs 5.2 lakh after 31 March 2018.

Here, LTCG will be calculated as under:

LTCG till 31 Jan 2018 is exempt. Therefore LTCG will be calculated using 31^st Jan price. So the gains will be only Rs 1.2 lakh ( Rs. 5.2 lakhs – Rs. 4 lakhs)
Out of this, Rs 1 lakh will be tax free in a year and only Rs 20,000 will be taxed at 10%.

Tax on LTCG = Rs. 20,000*10% = Rs. 2000

Setting off of losses:

Suppose you have STCL on some assets and STCG on some assets, you can adjust your STCL with STCG and pay tax on the net STCG. STCG can be adjusted with LTCG as well.

Similarly, if you have LTCL on some assets and LTCG on some assets, you can adjust the loss with gain and pay tax on net gain.

Hope above information is useful to you. Stay connected for any queries.