Computation of Capital Gains – Long Term Capital Gains & Short Term Capital Gains

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  • Last Updated on 13 July, 2021

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Any gains arising from transfer of capital assets gives rise to capital gains in the hands of the transferor. Such gain further be classified on the basis of the holding period, into two categories i.e. Long term capital gains and short term capital gains.
The incidence of tax on long-term capital gains is generally lesser than tax on short-term capital gains. Indexation benefit is allowed on Cost of Acquisition and Cost of Improvements to nullify impact of inflation when it comes to long term capital assets; such benefit is not allowed in case of calculating short term capital gains.
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Computation of Capital Gains: 

Particulars

Rs.

Full value of consideration

Less:

a) Expenditure incurred wholly and exclusively in connection with transfer

b) Cost of acquisition*

c) Cost of improvement*

 

Less:

Exemption under Sections 54 to 54GB (if any)

xxx

 

 

(xxx)

 

(xxx)

(xxx)

 

(xxx)

Short Term/ Long Term Capital Gain or Loss

xxx

* Benefit of indexation shall also be allowed with respect to cost of acquisition and improvement while calculating Long term capital gains.

Full Value of Consideration: 

Full value of consideration is the amount in lieu of transfer of such an asset can be received in cash or in kind. Generally, if the consideration is received in kind then its fair market price to be taken as full value consideration. However, this is not always applicable and one may require to calculate the full value of consideration in alternate ways that those are prevalent.

Expenditure Incurred in Connection with transfer: 

One can deduct the amount that he may have encountered as an expenditure in connection with transfer of a capital asset while he is calculating his capital gains. Some of such expenditures are brokerage or commission paid to a third party, stamp duty paid while making the transfer, any kind of registration fee that you may have encountered, any kind of travelling fees or legal expenses in relation to the transfer of capital assets. However, if this expenditure is done in respect to any of the money that you have paid to the Securities Transaction Tax then this amount cannot be deducted from your capital gains while you are calculating your capital gains.

Income Tax

Cost of Acquisition of Capital Asset: 

The cost of acquiring a capital asset can be deducted from your capital gains while you are calculating the due tax. As per law the assessee can deduct all kind of expenses that he has encountered while acquiring it other than the expenditure in connection of its transfer, which he might have encountered while retaining or maintaining that capital asset. If the assessee have acquired the capital asset through a purchase then, the purchase price of that assets is considered to be his cost of acquisition.  

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