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How to Calculate STCG and LTCG on Shares in IT Return?

This blog explains Long Term Capital Gains and Short-Term Capital Gains and helps identify when the sale of assets shall be considered as LTCG or STCG, with examples.

The vastly varying holding periods determine the amount of taxes that should be charged on capital gains or losses. There are categorically, two kinds of holding periods where the standard of taxing is held and decided- Short Term Capital Gains and Long-Term Capital Gains Tax. If the holding period is more than that of one year or has an even longer expiration duration or none at all, then it classifies as a long-term capital gain, however, if the holding period is shorter than a year’s duration of time, then the capital gain is for a short term.

What are LTCG and STCG?

While calculating capital gains on shares, one should keep in mind the cost included in the computation should include not only the purchase or buying price of the asset but also the associated expenses on the asset and the brokerage cost involved if any, in the brokerage, etc of the selling of that particular share or shares. Capital Gains are usually the increase in the market value of a share, in a way that the current value of the shareowner is higher than the amount with which it was bought before.

If Short term capital gains need to be calculated, then it can be done by reducing the value of the cost of Brokerage or dealer commission or the expenses involved in the sale of the asset or share, that is:

  • The buying price of the share
  • Brokerage prices on the sale of the asset or the selling of share

In simpler mathematical equation form, the relationship between short-term capital gains, brokerage prices and purchasing prices/ selling prices of the shares by the share owner is:

Short-term capital gain = Selling Price of the share – (Purchase/ Buying Price + Cost of Brokerage)

If Long term capital gains need to be calculated then it can be done by subtracting the values of two factors from the selling price of the shares or bonds or commodities or estate, by the owner, they are

  • Brokerage costs and the associated expenses in the sale of assets or selling of share
  • The indexed Buying price of the asset/share. (The benefit of indexation is just to balance off the inflation on the capital gain in the sale of a share or bond etc)

When the inflation or fluctuation in the currency rate is balanced well against the value of the asset or share, then the long-term capital gain can be easily calculated.

When an individual pitches a redemptive retrieval of the funds invested in a share after its selling, the surplus amount incurred by them is called capital gains.

Holding period Returns are also used to compare the capital gains or incomes garnered after the sales of shares and stocks or other commodity and gives a fastidious summarisation of the overall performance of investment sought by the share or asset owner etc

The holding period and its asset appreciation (income) can be calculated by two important components in the equation

  • End of period value- An increased value of bond or commodity or share after the holding period (during which the owner keeps the share with himself), after which it is sold to another.
  • Initial Value- The price at which the share was purchased

Holding Period Return = ((Income + (end of period value – original value)) / original value) * 100.

Short-Term and Long-Term Capital Gains Tax:

To calculate the final net redeeming of capital, and the profit hence amassed on the sales of bonds, equity, shares etc, are also affected by the payment of taxes on the income before the STCG taxes, and LTCG taxes are implemented.

Short Term Capital gain STCG= Full sales value – (Brokerage expenses + Associate costs + purchase price of share/bond/ commodity)

For short-term capital gains and long-term capital gains, the methods and rates of taxes levied on the profits or capital gains differ greatly from others. Section 111 (A) of the Income Tax Act or ITA, is mentioned a 15 percent tax on short-term capital gains. This includes equity stocks, bonds, shares, and other components of business trust, sold either on 1st October 2004 or after that date on a verified, recognized and legitimate stock exchange, and falling under the STT or the Securities Transaction Act.

Long Term Capital Gain LTCG= Full value consideration received – (cost of indexation+ indexed improvement cost (if any) + other associate or transfer cost (If any))

At first, the long-term capital gain that fell under Section 10 (38) under the Income Tax Act (ITA): was not to be taxed. However, post-2019, it was determined in the ITA, that earlier the exempted capital gains which were long term were to be taxed if the gain through the sale of assets exceeded 1 lakh rupees (tax without indexing)

The long-term capital gains tax on mutual fund schemes aims to invest in equity stocks on non-equity assets like equity shares, equity-oriented or equity-related instruments, which are taxable. The components of business trust need to be calculated using the aforementioned formula, by putting the values of all the added subdivisions in the equation. The tax which is applicable (without indexing) (except on the equity assets like commodities/ bonds/ shares/ real estate etc) on non-equity ones that reflect no ownership is unconditionally fixed at 10%.

However, for short-term capital gains, the tax levied on the amount of asset appreciation deducted from the purchase value is 15% (that is, five percent more Long-Term Capital Gains). Hence, it is deduced that having long-term Capital Gains is far more profitable and beneficial for equity owners than that short-term Capital Gains. capital gains. Investing in listed securities and equity-oriented mutual funds for long-term holdings also works out better as the capital gains from these sources are not subject to tax. Apart from the short-term capital gain tax, a surplus Cess Tax is also charged over the gained amount due to asset appreciation.


Through some of the obvious unbridled advantages of the long term over the short-term holding of capital gains of the equity and non-equity funds, the owner can hold the assets for far longer than planned, if the profits seem to be hesitant during the time of holding assets which may have been pre-determined. One can always wait it out till the shares are at a profitable go-to rate, from where they can be sold, and also through the convenience of paying the lesser bock of tax levied on the long-term capital gains as compared to the short-term holdings of the same.

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