Connect with us

Hi, what are you looking for?


Planning for the Long Term Capital Gain Regime (LTCG)

Abhinav Angirish is founder,

Earnings derived from the sale of any capital asset are termed as capital gains. Such capital gains-short term or long term is taxed under the Income Tax Act, 1961. Capital gains earned from assets owned for more than 36 months are considered long-term capital gains, whereas, profits earned from assets held for less than 36 months is considered short-term capital gain.

Since the Union Budget 2018, long-term capital gains from equity mutual funds and direct schemes are now taxed at 10.4% including cess and indexation.  Investors now have to pay 10% tax on profits exceeding more than Rs 1 lakh from the sale of shares or units of the mutual funds. Also, the Budget 2018 also grandfathered the capital gains earned from sale of shares or equity mutual fund schemes until 31 January 2018. Earlier, LTCG tax on stocks was scrapped in the year 2004-05 by former finance minister P. Chidambaram.


The LTCG regime came into effect from 1April 2018 and applies to new investors as well as the investors holding assets for minimum period of twelve months from the date of acquisition.

What qualifies as long-term capital gains?

Few investment avenues that attract long-term capital gains are:

Sale of a property:

The capital gained from the sale of a property that is held for more than 2 years.

Sale of agriculture land

Returns gained from the sale of an agriculture land that is held for 1-3 years.

Mutual fund investments

Mutual fund investments that are held for more than a year are classified as long-term gains.


Returns from investment in stocks and bonds qualify for long-term capital gains held for more than a year.

How is Long Term Capital Gains calculated?

The reforms made in the Union Budget 2018-19 implies that any person who has sold shares after April 2018 will have to pay 10% long-term capital gains tax without any indexation on making a gain of amount more than Rs 1 lakh. LTGC booked until 31st Jan 2018 is not liable for any taxes.

So here is how LTCG is calculated for an investor who has invested after April 2018 or is investing now.

  • Actual value of the asset
  • Fair market value of the asset
  • Cost of sale

For example: If we invest Rs 2 lakh and they turn out to be Rs 3.5 lakh by when we plan to sell them than we only owe a 10% tax on 50,000 as Rs 1 lakh of profit is exempt from tax, i.e. Rs 50,000 on a profit of Rs 1.5 lakh initially.

How LTGC has minimal impact on long term investments?

LTCG Impact on Rs 50 lakh Lumpsum Investment Original investment Equity Returns Tax
50,00,000 12% 10%
Year Value (before tax) Capital Gains Taxable Capital Gains Tax Value (after tax) CAGR (before tax) CAGR (after tax) Impact
5 88,11,708 38,11,108 37,11,708 3,71,171 84,40,538 12% 11.04% 9.74%
10 1,55,29,241 1,05,29,241 1,04,29,241 10,42,924 1,44,86,317 12% 11.22% 9.91%
15 2,73,67,829 2,23,67,829 2,22,67,829 22,26,783 2,51,41,046 12% 11.37% 9.96%
20 4,82,31,465 4,32,31,465 4,31,31,465 43,13,147 4,39,18,319 12% 11.48% 9.98%
25 8,50,00,322 8,00,00,322 7,99,00,322 79,90,0322 7,70,10,290 12% 11.56% 9.99%

The above example clearly shows you that the longer the duration of the investment, lessen the impact of the LTCG. At 12% returns, investment of Rs 50 lakh for 25 years comes to Rs 8.5 crore. Considering LTGC at 10%, you will have to pay Rs 80 lakh as tax and will get Rs 7.7 crore in hand. The above calculation also shows that CAGR keep on increasing as longer is the period of investment. This is because if we sell our security after an year we will paying 10% tax and our in hand assets will be worth 90%, which will be compounding at 90% and if we hang on to a longer term the asset will compound at a 100%, ie including the 10% tax component This clearly defines that if you invest for a long-term, you are sure to get good benefits from LTCG regime.

Tax Exemptions on Long Term Capital Gains across asset class

Here is a list of exemptions that can be claimed with respect to capital gains on various assets

Section 54 EC entitles an individual to avail tax exemption if the entire capital earned is invested in bonds issued by NHAI that is National Highway Authority of India or REC which is Rural Electrification Corporation. The limit for such investment is Rs 50 lakh.

Section 54 of the Income Tax Act, 1961, tax exemption can be claimed if the entire profit earned is used to buy another house. The house can be purchased within 2 years from the date of sale of the previous property or a new house can be constructed within 3 years from the date of sale.

Tax exemption can also be gained by investing in the Capital Gains Accounts Scheme (CGAS) in any public sector bank.

Capital gains tax is not applicable if the capital earned from the sale of a property is invested in the setup of a small or medium scale industry.

  • Abhinav Angirish is founder,

Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

PR Newswire

Copyright © Glocal Infomart Pvt Ltd. All rights reserved. Usage of content from website is subject to Terms and Conditions.