LTCG on Equity Shares India: Example Calculations

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If you have purchased shares before 1st April 2018 and have sold them in the FY 2018-19, based on the date of purchase, you may be expected to pay Long Term Capital Gains Tax on the sale of those shares.The calculation of LTCG tax is complex with words like Fair Market Price and Cost of Acquisition being thrown in.

In this post I am trying to declutter the tax calculation with a few examples. Remember, these are based on my understanding. I am not an auditor and this is not professional advise. Kindly verify the numbers with your auditor.

The key to calculation of LTCG is the 'Cost of Acquisition'. This is calculated as per Formula 1 given below

Formula 1: Higher of Original Purchase  Price and ( Lower of the highest prices on 31-Jan-2018 and the Sales Price)

And LTCG is calculated as Formula 2:  [(Sales Value - Selling expenses) - (Cost of Acquisition + Purchase Expenses)

Little confusing. I request you to read the above two sentences again. First one talks about calculating the Cost of Acquisition and second one talks of using that value to calculate the LTCG.

Let us look at some examples:

Example 1: IPO Purchase and additional purchases in secondary market

Subbu got 199 Shares of  of Coal India allotted on 20-Nov-2018 at an IPO price of 233. Later he purchased 301 shares of Coal India on 22-Sep-15 at an average price of 339.65. The highest price of Coal India on 31-Jan-2018 was 304.55. He sold off the entire 500 shares on 24-Sep-18 at an average price of 278.55.

This set of transactions is eligible for LTCG. Let us calculate the LTC Gain or Loss.

Step 1. For 199 shares received in IPO

1. Original Purchase Price: 233

2. Price as on 31-Jan-2018: 304.55

3. Sales Price: 278.55

4. Lower of 2 and 3: 278.55

5. Cost of acquisition as per Formula 1: Higher of 1 and 4: 278.55

6. Purchase Expenses (Brokerage and Taxes): 0 (IPO purchase)

7. Selling Expenses (Brokerage and Taxes): 491.55

8. LTCG as per Formula 2: [(199*278.55 - 491.55) - (199*278.55+0)] : -491.55

Step 2: For 301 shares purchased on 22-Sep-19

1. Original Purchase Price: 339.65

2. Price as on 31-Jan-2018: 304.55

3. Sales Price: 278.55

4. Lower of 2 and 3: 278.55

5. Cost of acquisition as per Formula 1: Higher of 1 and 4: 339.65

6. Purchase Expenses (Brokerage and Taxes):877.88

7. Selling Expenses (Brokerage and Taxes): 742.98

8. LTCG as per Formula 2: ((301*278.55 - 742.98) - (301*339.65+877.88)) : -20012

Total LTC Gain / Loss: -20012 - 491.55 = -20503.55

Since this is a loss, no tax is applicable. 

2. Bonus Issue

Rahul purchased 100 Shares of Infosys on 12-Apr-2015 at a price of 1640 and the purchase expenses were 1000 rupees. on 22-Feb-2017, the company issued Bonus Shares at the rate of 1:1. The shares were trading at a high of 952 on 31-Jan-18. Rahul sold the 200 shares on 12-Nov-2018 at a price of 840. The selling expenses were 1200 rupees.

Step 1. For 100 shares purchased in secondary market

1. Original Purchase Price: 1640

2. Price as on 31-Jan-2018: 952

3. Sales Price:840

4. Lower of 2 and 3: 840

5. Cost of acquisition as per Formula 1: Higher of 1 and 4: 1640

6. Purchase Expenses (Brokerage and Taxes): 1000

7. Selling Expenses (Brokerage and Taxes): 1200

8. LTCG as per Formula 2: ((100*840-1200) - (100*1640+1000)) :-82200

Step 2: For 100 shares received as bonus shares

1. Original Purchase Price: 0

2. Price as on 31-Jan-2018: 952

3. Sales Price: 840

4. Lower of 2 and 3: 840

5. Cost of acquisition as per Formula 1: Higher of 1 and 4: 840

6. Purchase Expenses (Brokerage and Taxes):0

7. Selling Expenses (Brokerage and Taxes): 1200

8. LTCG as per Formula 2: ((100*840-1200) - (100*840+0): -1200

Total LTC Gain / Loss: -82200 - 1200 = -83400

Since this is a loss, LTCG Tax is not applicable

3. Mix of STCG and LTCG

Venkat purchased 500 Shares of IDFC Bank at a price of 30  and purchase expense of 150 on 01-Sep-15. He added another 300 shares of IDFC Bank on 03-Feb-18 at 40 rupees with a purchase expense of 120. He sold 800 shares of IDFC First Bank on 9-September 2018 at a price of 47 and selling expense of 200. The price of IDFC Bank on 31-Jan-18 was 42

Step 1. For 500 shares purchased on 01-Sep-15

1. Original Purchase Price: 30

2. Price as on 31-Jan-2018: 42

3. Sales Price:47

4. Lower of 2 and 3: 42

5. Cost of acquisition as per Formula 1: Higher of 1 and 4: 42

6. Purchase Expenses (Brokerage and Taxes): 150

7. Selling Expenses (Brokerage and Taxes): 125 (200 * 500/800)

8. LTCG as per Formula 2: ((500*47-125) - (500*42+150)) : 2225

Step 2: For 300 shares purchased on 03-Feb-18. This will be considered as STCG

1. Original Purchase Price:40

2. Sales Price:47

3. Purchase Expenses (Brokerage and Taxes):120

7. Selling Expenses (Brokerage and Taxes): 75 (200*300/800)

8. STCG as per Formula 2: ((300*47-75) - (300*40+120):1905

Total LTC Gain / Loss: 2225

Total STC Gain / Loss: 1905

Hope this clarifies. In case you have any crazy situations, do let me know. Let us work on it together. 

Since this is a profit, but the amount is less than 100000, LTCG tax is not applicable. However STCG Tax at the rate of 15% is applicable.