Long-Term Capital Gains(LTCG): Tax Rates, How to Calculate, Exemptions and Examples

Profits earned from the sale or transfer of capital assets like property, shares, bonds, and vehicles fall under the “Income from Capital Gains” category. Capital assets are classified as short-term or long-term, with long-term capital gains (or losses) arising when long-term assets are sold or transferred.

Budget 2024 Updates

From FY 2024-25, the holding periods for long-term assets are redefined:

Listed Securities: 12 months.
Other Assets: 24 months.

Key tax updates:

The LTCG exemption limit for equity shares, equity-oriented funds, and units of business trusts will increase to ₹1.25 lakh/year.
Tax on these gains will rise from 10% to 12.5%.
For other assets, the LTCG tax rate will be reduced to 12.5%, but the indexation benefit will be removed.

For land and buildings:

Post-July 23, 2024: Tax at 12.5% (no indexation) or 20% (with indexation), depending on the acquisition date.
Pre-July 23, 2024: Assets held for over 24 months are long-term.

This guide explains LTCG tax rates, calculation methods, exemptions, and examples in detail.

What is Long-Term Capital Gain (LTCG)?

LTCG refers to the profit earned from selling long-term capital assets. It is governed by:

Section 112A: Applies to equity shares, equity-oriented funds, and units of business trusts.
Section 112: Covers all other long-term capital assets.

How to Calculate Long-Term Capital Gains

Step 1: Full Value of Consideration
Determine the total value received from selling the asset, including monetary payments or market value.

Step 2: Net Consideration
Subtract expenses like brokerage or commission from the full value of consideration.

Step 3: Cost of Acquisition
Calculate the purchase price. For assets eligible for indexation, adjust the cost using the Cost Inflation Index (CII).

Formula:
Indexed Cost = Cost of Acquisition × (CII of Sale Year / CII of Purchase Year).

Note: From July 23, 2024, indexation benefits are removed for certain assets.

Step 4: Deduct Exemptions
Exemptions under Sections 54, 54B, 54D, 54EC, and 54F can reduce taxable LTCG if reinvested in specific assets.

Step 5: Calculate Taxable LTCG

Formula:
Taxable LTCG = Net Sale Consideration − (Indexed Cost of Acquisition + Indexed Cost of Improvement) − Exemptions.

LTCG Tax Rates

Listed Equity Shares and Equity-Oriented Funds:
- Post-July 23, 2024: Gains above ₹1.25 lakh taxed at 12.5%.
- Pre-July 23, 2024: Gains taxed at 10%.
Other Assets:
- Post-July 23, 2024: Taxed at 12.5% (no indexation).
- Pre-July 23, 2024: Taxed at 20% (with indexation).
Land and Buildings:
- Taxpayer’s choice for assets acquired before July 23, 2024:
  - 12.5% (no indexation) or 20% (with indexation).
- Assets acquired after this date: 12.5% (no indexation).

Examples of LTCG Calculation

Example 1: With Indexation (Pre-July 23, 2024)

Purchase Price: ₹20,00,000 (2005)
Sale Price: ₹65,00,000 (June 2024)
CII (2005-06): 117; CII (2024-25): 363

Calculation:

Indexed Cost = ₹20,00,000 × (363 ÷ 117) = ₹62,05,128.
LTCG = ₹65,00,000 − ₹62,05,128 = ₹2,94,872.

Tax Rate: 20% (with indexation).

Example 2: Without Indexation (Post-July 23, 2024)

Purchase Price: ₹20,00,000 (2005)
Sale Price: ₹65,00,000 (August 2024)

Calculation:

LTCG = ₹65,00,000 − ₹20,00,000 = ₹45,00,000.

Tax Rate: 12.5% (no indexation).

How to Report LTCG in ITR-2

Report LTCG details in Schedule CG under Part A of the ITR-2 form. The system will auto-fill the total taxable income in Part B based on inputs.

LTCG Tax Exemptions

To reduce LTCG tax liability, reinvest the gains in specific assets, like residential property or government bonds, under Sections 54, 54EC, etc. Ensure you meet all conditions to claim exemptions.

For personalized assistance with LTCG tax planning, reach out to us today!

How to Report Long-Term Capital Gains in ITR-2

To report long-term capital gains in your ITR-2 form, navigate to the Schedule CG (Capital Gains) section under Part A of the form. Here, you must enter the details of the asset sold, the sale price, and the applicable deductions. Based on your entries, the total taxable amount of capital gains will automatically reflect in Part B – Total Income of the ITR. Ensure you provide accurate details to avoid discrepancies during tax assessment.

Long-Term Capital Gain Tax Exemptions

The Income Tax Act provides several provisions to reduce the taxable amount of LTCG if the profits are reinvested into eligible assets. Below are some common exemptions available:

Section 54: Exemption on capital gains from selling residential property, provided the gains are reinvested in another residential property.
Section 54F: Applicable for reinvestment in a residential property when gains arise from the sale of assets other than residential property.
Section 54EC: Exemption for reinvesting in specified bonds issued by NHAI or REC, subject to a maximum investment of ₹50 lakhs.
Section 54B: Relief for agricultural landowners if the proceeds are reinvested in another agricultural property.
Section 54D: Exemption for capital gains arising from the compulsory acquisition of land and buildings used for industrial purposes.

To claim these exemptions, ensure you meet all the prescribed conditions, including timelines for reinvestment.

Importance of Understanding LTCG for Financial Planning

Long-term capital gains can significantly impact your overall tax liability. Understanding LTCG tax rates and exemptions enables individuals and businesses to plan their investments and asset transfers efficiently. By taking advantage of available exemptions and tax-saving strategies, you can reduce your tax burden and maximize returns on your investments.

Examples of LTCG Calculations

Example 1: With Indexation (Before July 23, 2024)
Mr. Rahul purchased a property in 2005 for ₹25,00,000 and sold it in June 2024 for ₹75,00,000. The applicable CII for 2005-06 is 117, and for 2024-25 is 363.

Calculation:

Full Value of Consideration: ₹75,00,000
Indexed Cost of Acquisition: ₹25,00,000 × (363 ÷ 117) = ₹77,56,410
LTCG: ₹75,00,000 – ₹77,56,410 = ₹0 (No taxable gain due to indexation adjustment).

Example 2: Without Indexation (After July 23, 2024)
Mr. Rahul sells the same property in August 2024 for ₹75,00,000.

Calculation:

Full Value of Consideration: ₹75,00,000
Cost of Acquisition: ₹25,00,000
LTCG: ₹75,00,000 – ₹25,00,000 = ₹50,00,000

Tax Rate:
Tax at 12.5% (no indexation): ₹50,00,000 × 12.5% = ₹6,25,000

Key Takeaways for Taxpayers

Understand the revised tax rates and rules effective from FY 2024-25 to minimize unexpected liabilities.
Evaluate whether to apply indexation based on your asset’s acquisition date and potential tax savings.
Leverage exemptions under sections like 54 and 54F by reinvesting gains wisely.

For tailored advice on managing your capital gains, consult a tax expert or financial advisor today!