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Long Term Capital Gain - How to calculate?

There are two possible options for calculating tax on Long Term Capital Gain:
  1. Long term capital gain taxable @ 20% when indexation benefit on cost of acquisition is claimed. Means Sale price less indexed cost of acquisition will be long term capital gain and same will be taxable at flat rate of 20%.  
  1. Long term capital gain taxable @ 10% when no indexation benefit on cost of acquisition is claimed. Means simply Sale Price less cost of acquisition of long term capital asset will be long term capital gain and same will be taxable at flat rate of 10%. 
One should calculate LTCG under both the above options and go for the option more profitable.

Indexed Cost of Acquisition:


Indexation is a mehod of calculating current value of payments made at a earlier time, by using price index.

In case of sale of Long Term Capital Assets(ie. asset held for 3 or more years) the Long Term Capital Gain is calculated by reducing the sale price by indexed cost of acquisition of the asset sold. Income Tax Department has notified cost inflation indices for every year which is used to calculate indexed cost of acquisition. We have explained the methodology in detail:

Cost of Acquisition(Purchase Cost) of the Asset Sold cost
Cost Inflation Index of the year of Sale  a
Cost Inflation Index of the year of Purchase b
Indexed Cost of Acquisition  cost *a/b

Click here for the Cost Inflation Index for all the years
Download LTCG calculator in Excel




To understand the calculation more clearly lets assume:

Mr. X sold his house for Rs. 50 lakhs on 15th Februray 2015. This house was purchased on 26th September 1999 for Rs. 15 lakhs. Cost of acquisition will be indexed as follows:

Cost of Acquisition of the House  Rs. 15,00,000
Cost Inflation Index of the year of Sale - 2014-15 1024
Cost Inflation Index of the year of Purchase - 1999-2000 389
Indexed Cost of Acquisition 1500000*1024/389
= Rs. 39,48,586





Calculation of Long Term Capital Gain under both the options using above example will be:


Option 1 (using Indexation)
Sale Value of the house Rs. 50,00,000
Indexed Cost of Acquisition of the House Rs. 39,48,586
Long Term Capital Gain on sale of house Rs. 10,51,414

Option 2 (Without Indexation)
Sale Value of the house Rs. 50,00,000
Cost of Acquisition of the House Rs. 15,00,000
Long Term Capital Gain on sale of house Rs. 35,00,000


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