How to Calculate Long Term Capital Gain?

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Calculate Long Term Capital Gain

An investor invests in various asset classes such as real estate, precious metal, property, stock or bond. The prime purpose of the investment is to generate considerable returns over a period. The gains or the profit comes under the category of “income ‘’. It is also called the capital gain.  

A capital gain is gains or profit, one makes while selling the asset. It does not apply to an inherited profit, as there is no sale, but only transfer of ownership. The income tax act has specifically exempted assets received as gifts by any way of inheritance or will. But in case, if the person who inherited the assets decides to sell it, capital gains will be applicable.  

Types of Capital Asset:  

There are mainly two types of capital asset: 

  1. Short Term Capital Asset: Any asset which is held for a period of fewer than 36 months is called Short Term Capital Asset.  
  2. Long Term Capital Asset: Any asset which is held for more than 36 months is called Long Term Capital Asset. Since the 2017-18, the holding period has been reduced to 24 months in the case of immovable property.  

Depending upon the time period, the taxation is paid whether it’s short term or long term. If the asset is held for a long term, then long-term capital gains tax will be applicable but in case, if it’s held for short term then short-term capital gain will be applicable. The long-term capital gain tax is taxed at 10% +4% Cess provided the gain in a financial year is more than one lakh. In the case of debt funds, the long-term capital gain is taxed at 20% without indexation.   

Calculation of Long-term Capital Gain:  

To calculate long term capital gain, an investor must need to follow these simple procedures:   

  • To calculate the long term, first, take into consideration the full value of the asset.  
  • Afterward, the individual must make the following deductions:  
    1. Transferring cost (cost incurred during transfer)
    2. Amount of money spent on acquisition. 
    3. Amount of money that is spent on improvement.
  • After one is done with all the deductions, investors must subtract any exemptions that are provided under Section 54B, 54F, Section 54EC and Section 54. 

*Disclaimer: investment in securities market are subject to market risks, read all the related documents carefully before investing 

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