InvestorQ : How do you calculate capital gains on shares and equity funds in our portfolio?
Pratik vyas made post

How do you calculate capital gains on shares and equity funds in our portfolio?

Nitin Shah answered.
2 years ago
The government of India reintroduced the LTCG tax on shares and stocks, on the 1st of February 2018. As per the new LTCG tax rules stipulated by the government, those earning profits over Rs.1 lakh from sales of shares or from investment in share-oriented products such as equity mutual funds held for one year or more will need to pay 10% tax on the overall profit.

However, LTCG’s ‘Grandfathering’ clause will provide an exemption to those who have already earned profits from the sale of shares or have generated capital gains from equity mutual fund schemes before the tax comes into effect. As per the new rules, LTCG tax on profits generated from sales of shares or equity mutual fund schemes earned till the 31st of January 2018 will be exempted (grandfathered).

The LTCG applied is 10% (plus applicable surcharge and cess) after an exemption of Rs 1 Lakh or on profits exceeding Rs.1,00,000 in a year. For example, assume you invested Rs 12 Lakh today and after a year this money becomes Rs 13.44 lakh assuming a CAGR of 12%. 

This how your tax liability will be calculated: 

Principal Amount - Rs 12,00,000
Investment tenure - 1 year
Assumed CAGR - 12%
Final Corpus - Rs 13,44,000
Gain - Rs 1,44,000
Exempted amount - Rs 1,00,000
Taxable Gain - Rs 44,000
LTCG (10%) - Rs 4400

*Real tax amount may vary due to applicable cess & surcharge.

Thus, the amount you actually end up paying is Rs 4,400 in the above illustration since the first Rs1 Lakh is exempted from tax. Also, this tax is applicable only for the gains earned post 31st Jan’18. You can have a similar calculation done for the corpus you have and predict the impact in the longer run.