What is LTCG?

The assets owned by an individual that may or may not be connected with business or profession are called capital assets. The common examples of capital assets include bonds, mutual funds, jewellery, patents, or trademarks. However, furniture and clothes for personal use, rural agricultural land are not capital assets.

The LTCG or long-term capital gains tax is charged on the profit generated from an asset such as shares, bonds, commodities, or real estate that is held for the long-term. The period of holding, which is ‘short term’ or ‘long term’ differs across various assets. It is defined as per the Income Tax Act, 1961.

The table below shows you how the capital assets are classified as short-term or long-term based on the holding period.

• Long-term capital gains tax is levied on the capital gains from shares and equity-oriented mutual funds, that are held for one year or more.
• The long-term capital gains tax is charged at the rate of 10%, on the gains above Rs 1 lakh in a financial year. Short-term capital gains tax is charged at the rate of 15%.

What is an LTCG Calculator (Long Term Capital Gains Tax Calculator)?

The long-term capital gains or LTCG Calculator is a utility tool, which shows you the long-term capital gains and the LTCG tax liability, for equity-oriented mutual funds and listed equity shares.

The LTCG Calculator consists of a formula box, where you enter the holding period, the purchase value, and the sale value of the equity-oriented fund. The calculator will display the taxable short-term capital gain or long-term capital gain, depending on the holding period.

How Does LTCG Calculators Work?

You can understand the working of an LTCG calculator with this example. You purchased 200 shares of XYZ Company Ltd at Rs 1,000 per share in May 2018. You sold all the 200 shares at Rs 1,800 per share in January 2020.

You have held the shares for more than one year. The profit of Rs 1,60,000 (200*1800 – 200*1000) is called long-term capital gains.

You have to pay the long-term capital gains tax on the gains that are above Rs 1 lakh in a financial year. You have the LTCG tax on Rs 60,000. (Rs 1,60,000 – Rs 1,00,000) at 10%. You pay a long-term capital gains tax of Rs 6,000. (Rs 60,000@10%).

Suppose you sold the 200 shares in January 2019 when the share price was Rs 1,500 per share. The total purchase value of your 200 shares in May 2018 was Rs 2,00,000. You have held the shares for less than one year. The profit of Rs 1,00,000 (200*1500 – 200*1000) is called short-term capital gains.

You must pay short-term capital gains tax at 15% on the short-term capital gains which is Rs 1,00,000 *15% = Rs 15,000.

The announcement for the introduction of the long-term capital gains tax on equity-oriented instruments and shares was made during the Union Budget 2018. The new rule was applicable for all the transactions that are made on or after 01 April 2018.

How to Use the ClearTax LTCG Calculator?

• You must choose the period when you sold the shares or equity-oriented mutual fund units. If you select before 31 March 2018, there is no long-term capital gains tax on the investment. If you choose after 01 April 2018, you will incur a long-term capital gains tax.
• You then select the holding period as less than one year if you have held the investment for the requisite period.
• You must enter the sale value and the purchase value of the investment.
• The ClearTax LTCG Calculator will show you the short-term capital gain and STCG taxes.
• You must select the holding period as more than one year if you have invested for this duration.
• You then select the sale value of the investment.
• You must select the date of purchase of the units as after 31 January 2018 or before 31 January 2018 as applicable.
• If you select the latter option, the calculator will ask you for the fair market value.
• The ClearTax LTCG Calculator will show you the long-term capital gain and LTCG taxes.

Benefits of Using the ClearTax LTCG Calculator?

• The ClearTax LTCG Calculator will show you the long-term capital gains tax on the purchase and sale of equity-oriented funds and shares in a matter of seconds.
• You get a birds-eye view of the actual return from the investment after accounting for the taxes. It helps you to plan the duration of the investment in equity funds and shares for maximum tax-efficiency.
• You can plan the investments in equity instruments as you already know the short-term or long-term capital gains tax you would incur depending on the holding period.

FAQs on the ClearTax LTCG Calculator?

Why does the ClearTax LTCG Calculator ask you for the date of sale of equity shares or units?

The long-term capital gains on the sale of equity-oriented funds and shares were made taxable during the Union Budget 2018. The rule would apply for all transactions made on or after 01 April 2018. If you had invested in equity-oriented securities or shares before 31 January 2018, all gains till that date are considered to be grandfathered and exempt from tax.

However, STCG would continue to be taxed at 15% (excluding surcharge and cess). Any long-term capital gains above Rs 1 lakh that arise from the transfer of equity-oriented mutual funds and shares after 01 April 2018 are taxed at 10%. The ClearTax LTCG Calculator considers this rule and calculates the long-term capital gains tax.

Why does the ClearTax LTCG Calculator ask for the holding period between the date of purchase and sale of equity units?

The ClearTax LTCG Calculator asks you to select the holding period as less than one year or one year or more. If you choose the option as less than one year, the calculator will show you the short-term capital gains tax on the investment. If you select the latter option, the calculator displays the long-term capital gains tax on the asset.

Why does ClearTax LTCG Calculator ask you to fill the FMV (Fair Market Value)?

To make sure that only the gains after 01 February 2018 are considered for taxation, the government introduced a grandfathering clause. You must calculate the cost of acquisition as per the formula shown below:

The cost of acquisition of the asset is the higher of:

a) The actual cost at which the asset is acquired.

b) The lower of the fair market value as of 31 January 2018 and the total amount you receive when selling the equity-oriented fund or share.

Let us understand the calculation of long-term capital gains for different scenarios:

Example 1: You have purchased an equity share on 01 February 2017 at Rs 150. The fair market value as of 31 January 2018 was Rs 250. You sold the share on 01 May 2018 at Rs 300.

The actual cost of acquisition at Rs 150 is lower as compared to the fair market value (FMV) on 31 January 2018. The FMV of Rs 250 is taken as the cost of acquisition. The long-term capital gains tax will be the difference between the selling price of the asset and the fair market value, which is Rs 50 (Rs 300 – Rs 250).

Example 2: You have purchased an equity share on 01 February 2017 at Rs 200. The fair market value as of 31 January 2018 was Rs 150. You sold the share on 01 May 2018 at Rs 300.

The fair market value on 31 January 2018 at Rs 150 is lower as compared to the actual cost of the acquisition at Rs 200. The actual cost of Rs 200 will be taken as the actual cost of the purchase. The long-term capital gain will be the difference between the selling price of the asset and the actual cost of the acquisition, which is Rs 100 (Rs 300 – Rs 200).

Example 3: You have purchased an equity share on 01 February 2017 at Rs 200. The fair market value as of 31 January 2018 was Rs 250. You sold the share on 01 May 2018 at Rs 100.

In this example, the actual cost of acquisition at Rs 200 is lower as compared to the fair market value as of 31 January 2018 at Rs 250. The sale value of the asset at Rs 100 is also lower as compared to the fair market value of Rs 250 and the cost of the acquisition at Rs 200. The actual cost of acquisition of Rs 200 is taken as the cost of the acquisition. The long-term capital loss is Rs 100 (Rs 100 – Rs 200) for this scenario.