Unable to complete your ITR filing?
When a long-term capital asset is transferred, the profit arising from the transfer may be taxable as Long-Term Capital Gain (LTCG). The method of calculating LTCG depends on the type of asset, date of transfer and whether indexation is permitted under the applicable law.
Basic Formula for Calculating Long-Term Capital Gain
For most long-term capital assets transferred on or after 23 July 2024, capital gain is broadly calculated as follows:
| Particulars | Amount |
|---|---|
| Full value of consideration / Sale consideration | XXXXX |
| Less: Expenditure incurred wholly and exclusively in connection with the transfer, such as eligible brokerage or commission | (XXXXX) |
| Less: Cost of acquisition | (XXXXX) |
| Less: Cost of improvement, if allowable | (XXXXX) |
| Long-Term Capital Gain / Loss | XXXXX |
Is Indexation Available on Long-Term Capital Gains?
The rules relating to indexation were substantially changed by the Finance (No. 2) Act, 2024.
For transfers taking place on or after 23 July 2024, the benefit of indexation has generally been removed while calculating long-term capital gains. The cost of acquisition and cost of improvement are normally deducted without applying the Cost Inflation Index (CII).
| Date / Situation | Indexation | General LTCG Tax Treatment |
|---|---|---|
| Transfer before 23 July 2024 | Available in eligible cases | Generally 20% with indexation, subject to asset-specific provisions |
| Transfer on or after 23 July 2024 | Generally not available | Generally 12.5% without indexation, subject to applicable provisions |
| Resident Individual/HUF selling land or building acquired before 23 July 2024 | Special grandfathering protection applies | Tax under the new 12.5% method cannot exceed the tax calculated under the earlier 20% method with indexation |
Special Rule for Land or Building Acquired Before 23 July 2024
A special protection is available to a resident individual or resident Hindu Undivided Family (HUF) where:
- The capital asset is land or building, or both
- The asset was acquired before 23 July 2024 and
- The transfer takes place on or after 23 July 2024
In such a case, the tax liability is effectively compared under two methods:
| Method | Capital Gain Calculation | Tax Rate |
|---|---|---|
| New method | Without indexation | 12.5% |
| Grandfathered comparison | With indexation | 20% |
If the tax calculated at 12.5% without indexation is higher than the tax calculated at 20% after indexation, the excess tax is ignored. This ensures that eligible resident individuals and HUFs are not adversely affected by the withdrawal of indexation on qualifying land or buildings acquired before 23 July 2024.
How is Indexed Cost of Acquisition Calculated?
Where indexation is permitted, the indexed cost of acquisition is calculated using the Cost Inflation Index (CII).
Indexed Cost of Acquisition = Cost of Acquisition × (CII of the year of transfer ÷ CII of the year of acquisition)
Where the asset was acquired before 1 April 2001, special rules relating to the fair market value as on 1 April 2001 may apply while determining the cost of acquisition.
How is Indexed Cost of Improvement Calculated?
Where indexation of improvement cost is permitted, the formula is:
Indexed Cost of Improvement = Cost of Improvement × (CII of the year of transfer ÷ CII of the year of improvement)
For an asset acquired before 1 April 2001, generally only eligible capital expenditure incurred on or after 1 April 2001 is considered as cost of improvement, subject to the applicable provisions.
Cost Inflation Index for Recent Years
| Financial Year | Cost Inflation Index (CII) |
|---|---|
| 2021-22 | 317 |
| 2022-23 | 331 |
| 2023-24 | 348 |
| 2024-25 | 363 |
| 2025-26 | 376 |
| 2026-27 | 384 |
Example: LTCG Without Indexation
Suppose a taxpayer purchased a long-term capital asset for ₹20,00,000 and later sold it for ₹35,00,000. Brokerage and other eligible transfer expenses amount to ₹50,000.
| Particulars | Amount |
|---|---|
| Sale consideration | ₹35,00,000 |
| Less: Transfer expenses | (₹50,000) |
| Less: Cost of acquisition | (₹20,00,000) |
| Long-Term Capital Gain | ₹14,50,000 |
Where the general 12.5% LTCG rate applies, tax is calculated on the taxable long-term capital gain at the prescribed rate, subject to applicable exemptions, surcharge and health and education cess.
Special Rule for Listed Equity Shares and Equity-Oriented Funds
Long-term capital gains from eligible listed equity shares, units of an equity-oriented mutual fund and units of a business trust are governed by separate provisions where the prescribed Securities Transaction Tax (STT) conditions are satisfied.
For transfers on or after 23 July 2024, such LTCG is generally taxable at 12.5% on gains exceeding ₹1,25,000 in the relevant year.
Special grandfathering rules also apply while determining the cost of certain eligible equity assets acquired before 1 February 2018.
Income-tax Act, 1961 vs Income-tax Act, 2025
The applicable legislation depends on the year to which the income relates.
| Subject | Income-tax Act, 1961 | Income-tax Act, 2025 |
|---|---|---|
| General computation of capital gains | Section 48 | Section 72 |
| General tax on LTCG | Section 112 | Section 197 |
| LTCG on specified listed equity assets | Section 112A | Section 198 |
| Applicability | FY 2025-26 / AY 2026-27 and earlier years, subject to transitional provisions | Tax Year 2026-27 onwards |
Important Points to Remember
- Do not automatically use indexed cost while calculating every long-term capital gain.
- For most transfers on or after 23 July 2024, the actual cost rather than the indexed cost is used.
- Resident individuals and HUFs have special grandfathering protection for qualifying land or buildings acquired before 23 July 2024.
- Listed equity shares and equity-oriented funds are subject to separate LTCG provisions.
- The sale consideration itself may also be subject to special deemed-value provisions in certain cases, particularly for immovable property.
- Eligible exemptions such as Sections 54, 54EC or 54F may reduce the taxable capital gain where their respective conditions are fulfilled.
- The amount of capital gain and the tax payable on that gain are separate calculations. A special tax rate does not change the amount of gain itself.
For Assisted Service, please WhatsApp us on +91-9320546101 or raise a support ticket here
Comments
0 comments
Please sign in to leave a comment.