Capital Gains: formula sheet

Key formulas

Capital gain trigger

Capital gain arises = Capital asset + Transfer + Gain on transfer

If the item is excluded from capital asset, or the event is not a transfer, there is no capital gain under this head.

Capital asset definition

Section 2(14): property of any kind held by an assessee, except listed exclusions

Exclusions include stock-in-trade, personal effects (not jewellery or art), rural agricultural land, and specified old gold and bearer bonds.

Transfer definition

Section 2(47): sale, exchange, relinquishment, extinguishment of rights, compulsory acquisition, conversion into stock-in-trade, and similar events

Section 47 lists events that are not a transfer, such as gift, will, inheritance and HUF partition.

Holding period: 12 months

Long-term if held MORE than 12 months

Applies to listed equity shares, other listed securities such as listed bonds and debentures, and units of equity-oriented mutual funds. It does not apply to items covered by section 50AA, such as unlisted bonds and debentures, which are deemed short-term.

Section 50AA assets

Specified mutual fund units, market-linked debentures and unlisted bonds or debentures = deemed short-term

Debt fund units acquired on or after 1 April 2023, market-linked debentures, and unlisted bonds and debentures transferred on or after 23 July 2024 are short-term whatever the holding period.

Holding period: 24 months

Long-term if held MORE than 24 months

Applies to unlisted shares and to land and buildings, for transfers on or after 23 July 2024.

Holding period: 36 months

Long-term if held MORE than 36 months

Applies to gold and other assets not covered by the 12-month and 24-month categories, for transfers on or after 23 July 2024.

Boundary rule

Held exactly the limit = short-term

The word is 'more than', not 'at least'.

Capital gain

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

The same structure applies to short-term and long-term gains. Only the holding period and tax treatment differ.

Holding period for listed securities

Long-term if held for more than 12 months; otherwise short-term

This 12-month limit covers listed securities, including units of equity-oriented mutual funds. Unlisted shares, land and buildings need more than 24 months to be long-term. Gold and most other assets also follow 24 months. Some specified assets, such as unlisted bonds and debentures and market-linked debentures, are treated as short-term whatever the holding period.

Gifted, inherited or will-based asset

Cost = Cost to previous owner + previous owner's improvement cost; holding period includes previous owner's period

Gift or inheritance is not a transfer for capital gains. The tax arises only when you later sell.

Bonus shares

Cost of acquisition = nil; holding period from date of allotment

This applies to bonus shares allotted on or after 1 April 2001.

Rights shares

Cost = Amount paid to company; holding period from date of allotment

Renouncing the right gives a short-term gain with nil cost. The buyer's cost is the price paid to the renouncer plus the price paid to the company.

Grandfathering for listed equity shares and equity-oriented fund units bought before 1 February 2018

Cost = Higher of (actual cost) and (lower of FMV on 31 January 2018 and sale value)

It applies only to long-term capital gains on listed equity shares and equity-oriented fund units acquired before 1 February 2018. It protects gains up to 31 January 2018 but never creates an artificial loss.

Indexed cost of acquisition

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

If the asset was acquired before 1 April 2001, use cost (or FMV on 1 April 2001) with CII of 2001-02 = 100 as the denominator.

Indexed cost of improvement

Indexed improvement = Cost of improvement × CII of year of transfer ÷ CII of year in which the improvement was made

Index each improvement separately using its own year. Improvements before 1 April 2001 are ignored.

Long-term capital gain with indexation

LTCG = Sale consideration − Expenses on transfer − Indexed cost of acquisition − Indexed cost of improvement

Sale price is never indexed. Transfer expenses are deducted as incurred.

Post-Budget 2024 tax choice (land or building)

Tax = lower of: 20% × gain with indexation, or 12.5% × gain without indexation

Available only to resident individuals and HUFs for land or buildings acquired before 23 July 2024. Other assets: 12.5% without indexation.

CII base

CII (2001-02) = 100

Use the year of the financial year, not the calendar year. The year of transfer is the year in which the sale occurs.

Holding period: equity and listed securities

Long-term if held > 12 months; short-term if held ≤ 12 months

Applies to listed shares, equity-oriented fund units, listed bonds, listed debentures and ETFs.

STCG on equity (Section 111A)

20% of short-term gain

Only if STT is paid on the sale. Covers listed equity shares and equity-oriented fund units.

LTCG on equity (Section 112A)

12.5% × (total LTCG − ₹1,25,000)

The ₹1,25,000 exemption is per year, across all such gains. No indexation. STT must be paid on sale.

Grandfathered cost of acquisition

Cost = higher of [actual cost, lower of (FMV on 31 Jan 2018, sale value)]

For equity acquired on or before 31 January 2018. It can never create a loss from the grandfathering step.

Specified mutual fund (Section 50AA)

Gain = deemed STCG, taxed at slab rate

Debt-oriented funds (over 65% in debt and money market). For transfers on or after 1 April 2025, the purchase date does not matter. No long-term benefit.

Other listed securities (bonds, gold ETFs, non-specified funds)

LTCG at 12.5% without indexation; STCG at slab rate

Listed securities need more than 12 months. Non-equity MF units that are not specified need more than 24 months.

Tax payable

Tax × (1 + 4% cess) + surcharge if applicable

Cess is 4% of tax plus surcharge.

Capital gain

Capital gain = Full value of consideration − (Cost of acquisition + Cost of improvement + Transfer expenses)

Use indexed cost only where indexation is allowed, which means land or building acquired before 23 July 2024 under the 20% option.

Long-term holding period for unlisted assets

Land, building, gold, jewellery, unlisted shares: more than 24 months

Listed shares and listed units need more than 12 months.

LTCG rate on these assets

12.5% without indexation (transfers on or after 23 July 2024)

Surcharge and 4% cess are extra.

Property option for old assets

Tax = lower of (12.5% × gain without indexation) and (20% × gain with indexation)

Only for resident individual or HUF, land or building acquired before 23 July 2024.

STCG rate

Taxed at slab rates as part of total income

Applies when the holding period is 24 months or less for these assets.

Sovereign Gold Bond

Interest: taxable. Redemption by RBI for an individual: exempt. Exchange sale: more than 12 months long term at 12.5%

Interest is taxable every year regardless of how the bond ends.

Stamp duty value rule for property

If stamp duty value > 110% of sale price, stamp duty value is used as sale price

Within the 10% tolerance, the actual sale price is used.

Section 54: asset and reinvestment

Sell: long-term residential house → Reinvest: capital gain in residential house in India

Buy 1 year before or 2 years after transfer, or construct within 3 years after transfer. Claimed by individual or HUF.

Section 54: limit

Exemption = lower of capital gain and cost of new house (cost counted up to ₹10 crore)

If long-term gain is up to ₹2 crore, you may invest in two houses in India. This option is available once in a lifetime.

Section 54F: asset and reinvestment

Sell: long-term asset other than residential house → Reinvest: net consideration in one residential house

Individual or HUF. On the date of transfer you must not own more than one residential house other than the new one.

Section 54F: proportionate exemption

Exempt gain = Capital gain × Amount invested ÷ Net consideration

If the full net consideration is invested, the whole gain is exempt. Cost counted is capped at ₹10 crore.

Section 54F: further house

No other residential house bought within 2 years, or built within 3 years, after the transfer

If you do, the exemption is withdrawn and the gain becomes taxable as long-term gain.

Section 54EC

Sell: long-term land or building → Invest gain in notified bonds within 6 months of transfer

Maximum ₹50 lakh across the financial year of transfer and the next financial year. Lock-in 5 years.

Lock-in of new asset

New house: 3 years. 54EC bonds: 5 years

Sale of house within 3 years: the exemption is deducted from its cost when computing the gain, and that gain is short-term. Early exit from 54EC bonds: exempt gain is taxed as long-term gain in that year.

Capital Gains Account Scheme

Deposit unused amount before the due date of filing the return

Used for 54 and 54F. Unused balance at the end of the period is taxed as long-term gain of that year.

STCL set-off

STCL → STCG first, then LTCG

Current-year STCL can be set off against any capital gain, short or long term.

LTCL set-off

LTCL → LTCG only

LTCL can never be set off against STCG or any other head of income.

Carry forward period

Up to 8 assessment years after the year of loss

Needs a return filed on or before the due date under section 139(1).

Carried-forward character

STCL → STCG or LTCG; LTCL → LTCG only

A loss keeps its short- or long-term nature when carried forward.

Order of use

Current-year loss set-off first, then brought-forward loss

Brought-forward losses are used against gains remaining after current-year set-off, oldest loss first.

Net gain

Net gain = Gains − losses set off − brought-forward losses used

Apply the rate for each type of gain only on the net amount of that type.

Tax-loss harvesting effect

New cost after rebuy = Rebuy price

Booking the loss lowers tax now but raises the future gain, so tax is deferred.

Quick revision

• Gain = full value of consideration − transfer expenses − cost of acquisition (and improvement). Exemptions, if any, are then applied.
• Listed equity shares and equity-oriented fund units: long-term if held for more than 12 months.
• Most other assets, such as unlisted shares, land, building and gold: long-term if held for more than 24 months.
• Short-term gain on listed equity shares and equity-oriented fund units where STT is paid is taxed at 20%.
• Long-term gain on such listed equity and equity-oriented funds is taxed at 12.5% on the gain above ₹1,25,000 in the year.
• Other long-term gains, such as gold and unlisted shares, are generally taxed at 12.5% without indexation. Check the workbook for the land and building option.
• Bonus shares have nil cost of acquisition. Grandfathering uses the 31 January 2018 value for listed equity bought before that date.
• Unlisted bonds and debentures, and specified mutual fund units under Section 50AA, are taxed at slab rates. Check the current definition in the workbook.
• Section 54 is for a residential house sold and a residential house bought. Section 54F is for any other long-term asset sold with the net consideration put into a house. 54EC needs specified bonds for land or building gains, with a 5-year lock-in.
• Short-term capital loss can be set off against short-term or long-term gain. Long-term capital loss can be set off only against long-term gain.
• Unabsorbed capital losses are carried forward for 8 assessment years, if the return is filed by the due date.
• Advance tax covers capital gains. If the gain arises late in the year, pay the tax in the remaining instalments.

Common mistakes

• Treating all personal items as outside capital asset Fix: Remember the carve-back: jewellery, paintings, sculptures, drawings and archaeological collections stay inside capital asset even if personal.
• Treating all agricultural land as exempt from capital gains Fix: Only rural agricultural land, as defined, is excluded. Urban agricultural land is a capital asset.
• Using the market value on the date of gift or inheritance as the cost of acquisition. Fix: For capital gains, the cost is the previous owner's cost. Market value at the gift date matters only for the separate gift tax rule, not for this cost.
• Starting the holding period from the date of gift or inheritance. Fix: Include the period for which the previous owner held the asset.
• Indexing the sale price as well as the cost Fix: Only cost of acquisition and cost of improvement are indexed. Sale consideration stays as is.
• Turning the ratio upside down Fix: The transfer year CII is always the numerator. Indexed cost must come out higher than the actual cost.
• Applying the ₹1,25,000 exemption to every sale separately. Fix: It is one limit per year on total LTCG from equity and equity-oriented funds with STT. Add all gains, then deduct once.
• Using the 31 January 2018 value as cost even when it is lower than actual cost. Fix: First take the lower of FMV and sale value. Then take the higher of that and actual cost.
• Using 12 months as the long-term limit for property, gold or unlisted shares. Fix: Link 24 months to unlisted and immovable assets. Link 12 months only to listed securities.
• Calling an asset long term when it is held exactly 24 months. Fix: The rule is "more than 24 months". Exactly 24 months is short term.

Exam tips

• Read the question for the event first. If it is a gift, will, inheritance or HUF partition, the answer is usually 'not a transfer'.
• Watch for boundary dates. Check whether the holding is exactly the limit or more than it.
• Match the asset type to the correct period before counting months. Listed securities and equity-oriented fund units use 12 months. Unlisted shares and land or buildings use 24 months. Gold and other assets use 36 months.
• Learn the exclusions list and the carve-backs together. Examiners like jewellery, art and urban agricultural land as trap options.
• Where the question states a date of transfer, apply the rule for that date and do not use older material.
• Read how the asset was acquired first. Most trap options in this topic come from using the wrong cost or the wrong start date.
• Remember the holding limits: 12 months for listed securities, including equity-oriented mutual fund units, and 24 months for land, buildings, unlisted shares and most other assets such as gold. Unlisted bonds and debentures are short-term whatever the period.
• For gift or inheritance questions, ignore the market value on the gift date when the question asks about capital gains cost.