LongTerm Capital Gain English

Long Term Capital Gain

Long-term capital gain is the profit earned from selling an asset that has been held for more than a year. LTCG, commonly found in stocks, real estate, and mutual funds, is known for having lower tax rates, making it an attractive option for long-term investment strategies.

Long Term Capital Gain Meaning

Long-term capital gains refer to the profit made from selling an asset that has been held for more than one year. These gains are usually taxed at a lower rate than short-term capital gains.

Long-term capital gains are important in financial planning and investment strategies. 

They apply to various assets like stocks, bonds, real estate, and mutual funds. Long-term gains typically benefit from lower tax rates, encouraging longer-term investment strategies. For example, if an investor buys and sells shares after holding them for more than a year, the profit from this sale is considered a long-term capital gain subject to LTCG tax rates.

Long Term Capital Gain Example

An example of a long-term capital gain would be purchasing shares for ₹50,000 and selling them two years later for ₹80,000, resulting in a gain of ₹30,000.

To illustrate, suppose an investor buys 100 shares of a company at ₹500 each (total investment ₹50,000) and sells them two years later when the share price is ₹800 (total selling price ₹80,000). The profit of ₹30,000 (₹80,000 – ₹50,000) qualifies as a long-term capital gain since the shares were held for over a year. This gain is then subject to LTCG tax per prevailing tax laws.

How To Calculate Long Term Capital Gain?

The formula for calculating long-term capital gains is LTCG = Sale Price – Indexed Cost of Acquisition. 

Indexation adjusts the purchase price for inflation, reducing the taxable gain.

  • Determine the Sale Price: The total amount received from selling the asset.
  • Calculate Indexed Cost of Acquisition: Adjust the original purchase price for inflation using the Cost Inflation Index (CII).
  • Apply the Formula: Subtract the indexed cost from the sale price to find the LTCG.
  • Consider Exemptions: LTCG may be reduced by certain exemptions under tax laws.
  • Account for Expenses: De