Capital Gains: formula sheet

Key formulas

Capital asset (basic test)

Capital asset = property of any kind held by you (business or not) − excluded items

Always check the exclusion list before computing any gain.

Capital gain trigger

Capital gain arises only if: capital asset + transfer + not an exempt (non-transfer) event

If any one is missing, there is no capital gain.

Section 8: deemed transfer on dissolution or reconstitution

Deemed full value of consideration = fair market value on the date the partner receives the asset

Applies to a firm, AOP or BOI (not a company or co-operative society). Profit is the entity's income of the tax year of receipt, under business profits or capital gains.

Section 8: who is who

Specified entity = firm, AOP or BOI (not a company or co-operative society); specified person = its partner or member

Reconstitution means a partner leaves, a new partner is admitted while an old one continues, or shares change among continuing partners.

Gain under section 8 (capital asset)

Capital gain = FMV on date of receipt − cost of acquisition (and related costs as per the computation rules)

If the item is stock-in-trade, the profit is taxed as business income instead.

Short-term capital asset

Period of holding ≤ specified period (12 or 24 months)

Held for not more than the limit. Exactly 12 or 24 months is still short-term.

Long-term capital asset

Period of holding > specified period (12 or 24 months)

Held for more than the limit. You need at least one day beyond the limit.

12-month group

Listed securities, units of equity-oriented funds, units of UTI, zero coupon bonds → 12 months

Securities must be listed on a recognised stock exchange in India for the 12-month test.

24-month group

All other assets (land, building, unlisted shares, jewellery, etc.) → 24 months

Treat any asset not in the 12-month group as a 24-month asset.

Period of holding

Date of transfer − Date of acquisition

For bonus and rights shares, acquisition date is the date of allotment.

Previous owner's period

Your period = Previous owner's period + your own period

Applies to gift, will, inheritance and succession, and the other cases the law lists.

LTCG rate (section 197)

Tax on long-term capital gains = 12.5%

General rule for long-term gains. For a resident individual or HUF transferring land or building acquired before 23 July 2024, section 197(3) ignores the excess tax over the tax at 20% with indexation, so 12.5% is not always the final tax.

LTCG on STT-paid listed equity (section 198)

Tax = 12.5% × (LTCG − ₹1,25,000)

Applies where the conditions in section 198(1) are met. For equity shares, STT must have been paid on both acquisition and transfer. For units of an equity-oriented fund or a business trust, STT on transfer is enough. The ₹1,25,000 is a threshold on the gain, taken on the total long-term gains of this kind.

Capital gain (basic rule, section 72(1))

Capital gain = Full value of consideration − Expenditure on transfer − Cost of acquisition − Cost of improvement

Expenditure must be wholly and exclusively in connection with the transfer.

Indexed cost of acquisition (section 72(8)(b))

Indexed cost of acquisition = Cost of acquisition × CII of year of transfer ÷ CII of first year of holding (or 2001-02 if later)

Use the later of the first year of holding and the year beginning 1 April 2001 as the base year. Apply only where indexation is allowed.

Indexed cost of improvement (section 72(8)(c))

Indexed cost of improvement = Cost of improvement × CII of year of transfer ÷ CII of year of improvement

Index each improvement separately using its own year.

Non-deductible items (section 72(3))

Not allowed: interest claimed under section 22(1)(b) or Chapter VIII; securities transaction tax

Do not deduct these even if the question lists them.

Cost Inflation Index (section 72(8)(a))

CII is notified by the Central Government for each tax year

The exam gives the CII figures. Do not use remembered values.

Slump sale: gain

Capital gain = Full value of consideration − Net worth

Net worth is deemed to be both cost of acquisition and cost of improvement. Short-term if the undertaking was held for 36 months or less, otherwise long-term (section 77).

Net worth of undertaking

Net worth = Aggregate value of total assets − Liabilities as per books

Ignore any revaluation of assets. Liabilities are taken as appearing in the books (section 77(5)).

Aggregate value of total assets

Depreciable assets: WDV of block | Self-generated goodwill: nil | Assets fully allowed or allowable under section 46: nil | Other assets: book value

Goodwill not acquired by purchase from a previous owner is nil. Purchased goodwill takes its book value (section 77(5)(b)).

Block of assets: short-term gain

Gain = Full value of consideration − (Transfer expenses + Opening WDV of block + Actual cost of assets acquired in the year)

Applies only if the result is positive, and the gain is deemed short-term (section 74(2)).

Block ceases to exist

Cost of acquisition = Opening WDV + Actual cost of assets acquired during the year

All assets of the block transferred in the tax year. The income or loss is short-term (section 74(3)).

Bonus shares

Cost of acquisition = nil

For a financial asset allotted without any payment on the basis of holding another financial asset (section 90(6)(d)). The original shares cost the amount actually paid for them (section 90(6)(a)).

Rights entitlement and rights shares

Original shares: amount paid | Renounced right: nil | Shares subscribed: amount paid | Renouncee: price paid to renouncer + amount paid to company

Section 90(6)(a) to (e).

Grandfathering of equity shares

Cost = Higher of [Actual cost, Lower of (FMV on 31 Jan 2018, Full value of consideration)]

For long-term equity shares, units of equity oriented funds or business trust units acquired before 1 February 2018 (section 90(7)). FMV: highest quoted price on 31 January 2018; if no trading that day, the highest price on the immediately preceding traded date; for a unit not listed, its net asset value on that date. For certain equity shares not listed on 31 January 2018, FMV is cost × CII 2017-18 ÷ CII of the first year of holding or the year beginning 1 April 2001, whichever is later (section 90(8)).

Assets held before 1 April 2001

Cost = Actual cost or FMV on 1 April 2001, at the assessee's option

Applies to other capital assets that became the assessee's property before 1 April 2001, not to assets with a special cost rule. For land or building, FMV on 1 April 2001 cannot exceed the stamp duty value of that date, where available (section 90(9) and (10)).

Goodwill and similar rights

Cost of improvement = nil | Cost of acquisition = purchase price if bought, else nil

Applies to goodwill, trade marks, brand names, tenancy rights, stage carriage permits, loom hours and similar rights (section 90(1) and (3)).

Section 82: original asset and new asset

Original: long-term residential house (income taxed as house property). New: one house in India, bought 1 year before or 2 years after transfer, or built within 3 years after

Taxpayer must be an individual or HUF. Under section 82(5) and (6), the assessee may opt for two houses as the new asset if the capital gain does not exceed ₹2 crore. Once the option has been exercised, it cannot be exercised again for the same tax year or any other tax year.

Section 82: amount exempt

If gain > cost of new asset: taxable gain = gain − cost of new asset. If gain ≤ cost of new asset: nil

Reinvest the capital gain, not the full sale price. Two separate ₹10 crore caps apply. Under section 82(7), cost of the new asset above ₹10 crore is ignored for section 82(1). Under section 82(8), capital gains above ₹10 crore is ignored only for the deposit under section 82(2).

Section 82: cost of new asset if sold within 3 years

Cost = nil (if gain exceeded cost of new asset), else cost − capital gain exempted

Use this when computing gain on a later sale of the new house within 3 years of purchase or construction.

Section 83: agricultural land

Land used for agriculture by the assessee or parent/HUF in the 2 years before transfer. New asset: other agricultural land bought within 2 years after transfer

If gain > cost of new land, the excess is taxable and the cost is nil for a transfer within 3 years. If gain ≤ cost, nil gain is charged and the cost is reduced by the gain.

Section 86: proportionate exemption

If net consideration > cost of new asset: exempt gain = capital gains × cost of new asset ÷ net consideration. If net consideration ≤ cost of new asset: whole gain exempt

Original asset is a long-term capital asset that is not a residential house. New asset is one house, bought 1 year before or 2 years after, or built within 3 years. Under section 86(8), cost of the new asset above ₹10 crore is ignored when applying section 86(1), so use the cost up to ₹10 crore in the proportion.

Section 86: net consideration

Net consideration = full value of consideration − expenditure wholly and exclusively on transfer

Under section 86(9), net consideration above ₹10 crore is ignored only for the deposit rule in section 86(2). It does not change the net consideration used in the proportion under section 86(1).

Capital gains account deposit

Deposit the amount not used for the new asset before filing the return, and not later than the due date under section 263. Attach proof

The deposit is needed for the amount not used to purchase or construct the new asset before the return is filed. It is not needed for the amount already used, for example a house bought within 1 year before the transfer. Amount already used plus deposit is deemed the cost of the new asset. Unutilised deposit: under sections 82 and 83 it is charged in the tax year in which the period expires (3 years from transfer for section 82, 2 years for section 83). Under section 86 it is charged in the tax year in which 3 years from transfer expire, using X − Y.

Section 86: charge on unutilised deposit

Taxable amount = X − Y, where X = gain not charged earlier, Y = gain that would have been exempt if cost of new asset were only the amount actually utilised

It is taxed as income of the tax year in which three years from the date of transfer expire. The assessee can withdraw the unused deposit under the scheme.

Section 86: withdrawal conditions

Section 86(7): new asset sold within 3 years of purchase or construction: exempt gain is charged as long-term capital gains of the year of sale. Section 86(6): another house taxed as house property bought within 2 years, or built within 3 years, after the transfer: exempt gain is charged as long-term capital gains of the year of that purchase or construction

Section 86(5): the exemption does not apply if the assessee owns more than one residential house other than the new asset on the transfer date, or buys another house within 1 year, or constructs another house within 3 years, of the transfer, and the income from that house (other than the one house owned on the transfer date) is taxable under the head Income from house property.

Eligible original asset

Long-term capital gain from transfer of land or building, or both

Gain from other assets does not qualify under this section.

Time limit for investment

Within 6 months after the date of transfer

Counted from the date of transfer, not from the date of receiving money.

Gain charged to tax

If gain > investment: taxable = gain − investment (charged under section 67)

If gain ≤ investment, the whole gain is not charged.

Exempt amount

Exempt = lower of (capital gain, eligible investment)

Eligible investment cannot exceed ₹50 lakh as per the limit.

Investment ceiling

Maximum ₹50,00,000 during any tax year, or in the year of transfer and the next tax year

Applies to investment from gains on one or more original assets.

Lock-in

Transfer or conversion into money within 5 years of acquisition: exempted gain deemed long-term capital gain of that tax year

Taxed in the year of transfer or conversion, not the year of original sale.

Loan on security

Loan or advance on security of the bond = deemed conversion into money on the date of loan or advance

The lock-in is broken even if the bond is not sold.

No double benefit

Investment used for section 85 gets no deduction under section 123

The same amount cannot be claimed twice.

Short-term gain on STT-paid listed equity (section 196)

Tax = 20% × STCG + normal tax on the balance of total income

Applies to equity shares, units of equity oriented fund and units of business trust where the sale is chargeable to STT.

Long-term gain on STT-paid listed equity (section 198)

Tax = 12.5% × (LTCG under section 198 − ₹1,25,000) + normal tax on (total income − LTCG)

STT must be paid on acquisition and transfer for shares; on transfer only for units. Deduct ₹1,25,000 only from the net long-term gain that qualifies under section 198, not from section 197 gains. If that gain is below ₹1,25,000, there is no tax at the special rate.

General long-term rate (section 197)

Tax = 12.5% × LTCG + normal tax on (total income − LTCG)

No ₹1,25,000 limit. Applies to long-term gains not covered by section 198.

Basic exemption adjustment for resident individual/HUF

Adjusted gain = Gain − (Basic exemption limit − (Total income − Gain)), only if (Total income − Gain) is below the limit

Applies in sections 196, 197 and 198. The shortfall reduces the gain first. Then tax the balance at the special rate. For section 198, apply 12.5% to the balance exceeding ₹1,25,000.

Land or building acquired before 23 July 2024 (section 197(3))

E = A − B, ignored only if A > B. A = tax at 12.5% on the gain. B = tax at 20% on the gain using indexed cost of acquisition and indexed cost of improvement.

Only for resident individual or HUF. If A is more than B, the excess E is ignored, so tax is effectively the lower of A and B. If A is not more than B, no excess arises and tax is A.

Carry forward of capital loss (section 111)

STCL: set off against any capital gain. LTCL: set off against long-term gains only. Carry forward up to 8 tax years.

Loss must first be set off in the same year under section 108.

Equity oriented fund test (section 198(8))

At least 65% in listed domestic equity shares, or 90% in units of another such fund

The percentage is measured using the annual average of monthly averages of opening and closing figures.

Quick revision

• A capital gain arises only when a capital asset is transferred. Check both before computing.
• Classify the gain first. The holding period decides short-term or long-term.
• Basic format: full value of consideration less transfer expenses less cost of acquisition less cost of improvement.
• Short-term gains do not get long-term benefits, and the reverse also holds, so keep the two gains separate.
• For gifted or inherited assets, the cost and holding period are generally taken from the previous owner. Check the rule for your case.
• Reinvestment exemptions depend on conditions and time limits. Missing one condition can cost the whole exemption.
• For the specified bonds exemption (formerly Section 54EC), remember the time limit, the annual investment cap and the lock-in period from your ICMAI text.
• If the gain exceeds the amount reinvested, only the proportionate part is exempt. Show this working.
• A gain on an exempted asset can become taxable if you break the lock-in or conditions within the stated period.
• Long-term gains on listed equity shares with securities transaction tax have a limit up to which gains are exempt. Check the rate and limit for your term.
• Do not mix capital gains with normal income when applying rates. Special rates apply to capital gains.
• In MCQs, read the dates in the question twice. Many answers depend on the date of acquisition or transfer.

Common mistakes

• Treating all personal belongings as excluded from capital asset. Fix: Remember that jewellery, paintings, sculptures, drawings, archaeological collections and works of art are capital assets even if kept for personal use.
• Charging capital gains on gold or shares held as stock-in-trade by a dealer. Fix: Ask first whether it is held as stock for business. If yes, the profit is business income.
• Treating all shares as 12-month assets. Fix: Check the word 'unlisted'. Unlisted shares need more than 24 months to be long-term.
• Calling an asset long-term when it is held for exactly 12 or 24 months. Fix: The test is 'more than'. Exactly 12 or 24 months is short-term. Add one day to be long-term.
• Deducting securities transaction tax as a transfer expense Fix: Section 72(3)(b) disallows it. Leave it out.
• Indexing in every problem Fix: Index only where the question or the provision applies it. Section 72(2) limits the indexed version to item B of the formula in section 197(3).
• Computing gain on each machine separately when a block of assets is sold. Fix: Use the block formula. Gain arises only if the sale value exceeds transfer expenses plus opening WDV plus additions during the year.
• Using the book value of self-generated goodwill in net worth. Fix: Goodwill not purchased from a previous owner is nil. Purchased goodwill is taken at book value.
• Reinvesting only the gain under section 86 Fix: Section 86 uses net consideration and a proportion. Sections 82 and 83 use the gain.
• Using the full sale price instead of net consideration Fix: Deduct brokerage and other expenditure wholly and exclusively connected with the transfer.

Exam tips

• In MCQs, spot the trap word: jewellery, art, stock-in-trade or rural agricultural land often decides the answer.
• Write the reason with every yes or no answer. Marks usually go to the reason.
• For firm dissolution questions, name section 8 and say clearly that the firm, not the partner, is taxed, using FMV as the consideration.
• Learn the non-transfer list as a short checklist: gift, will, trust, partition, group company transfers, amalgamation or demerger, conversion of debentures.
• Do not apply a rule from a topic you have not been asked about, such as exemptions. Answer capital asset or transfer first, then compute.
• Write the specified period (12 or 24 months) and the two dates in the first line. Step marks are often given for this alone.
• In MCQs, look for traps: 'unlisted', 'exactly 24 months', 'bonus shares' and 'gift'. Each one changes the answer.
• When a question has several lots of shares, classify each lot on its own and show the working in a small list.