How to Calculate Capital Gains and Losses?

Capital gains tax in India is charged on the profit made by a person on selling his capital asset. Capital assets are put into two categories "Short term Capital asset " and " Long Term Capital asset".

  • Short-Term Capital Asset: are shares and securities which a taxpayer owns for a period of 36 months or less from its date of transfer.
  • Long- Term Capital Asset: are shares and securities which a taxpayer owns for a period more than 36 months before the date of transfer.

For Equity shares which are listed in identified stock exchange, Units of equity related mutual funds, Units of UTI and Zero coupon bonds, and Government securities and listed debentures, the period of holding will not be for 36 months but for 12 months.

Transfer means when a person gives up his right on an asset including its selling, exchange, or compulsory acquisition under any law.

Following are the Computations for capital gains:

  • Full value consideration- (cost of acquisition + cost of improvement + cost of transfer) is equal to Short term Capital gain
  • Full value of consideration received or accruing – (indexed cost of acquisition + indexed cost of improvement + cost of transfer) is equal to Long term capital gain
  • Meaning of Indexed cost of acquisition is the same as "Cost inflation index of the year of transfer/ cost inflation index of the year of acquisition X Cost of acquisition"
  • Meaning of Indexed cost of improvement is the same as "Cost inflation index of the year of transfer / cost inflation index of the year of improvement X cost of improvement "
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