Many of us may hold shares that were purchased years ago. Over time, some of these investments have appreciated significantly and are now worth lakhs.
If you are planning to sell such shares in FY 2025-26 (LTCG tax), it is important to understand the capital gains implications under the latest tax provisions.
Read the article below to understand more about your gain and its taxability:
Capital Gains on Sale of Shares
Any gain arising from sale or transfer of capital assets - including house property, shares, and mutual funds - is taxed as capital gains. The nature of the gain (LTCG or STCG) depends on the holding period
For shares, equity oriented mutual funds and units of business trust:
- LTCG -if held for greater than 12 months
- STCG - if held for 12 months or less
For other capital assets:
- LTCG - if held for greater than 24 months
- STCG - if held for 24 months or less
Section 112A tax rate (Amended by Finance Act, 2025)
As per section 112A, from 23rd July, 2024, LTCG of shares, equity-oriented mutual funds and unit of business trustis taxable at 12.5% of the gain above Rs 1.25 lakh (an exemption of Rs 1.25 lakh is provided),where STT is paid.
Calculation of gain if the share was purchased after 31st January 2018
In case the share was purchased after January 31st, 2018, the computation is relatively simpler. Refer the below table for the same:
| Particulars | Gain | Loss |
| No of shares (a) | 1,000 | 1,000 |
| Sale price p.u. (b) | 400 | 400 |
| Cost price p.u. (c) | 300 | 450 |
| Total sale consideration (a*b) | 4,00,000 | 4,00,000 |
| Cost of Acquisition (a*c) | 3,00,000 | 4,50,000 |
| LTCG/ (LTCL) | 1,00,000 | (50,000) |
Calculation of gain if share was purchased after 31st January 2018
In case the shares were purchased on or before 31st January 2018, grandfathering provision applies.In this case:
- Compare fair market value (FMV or market price) of the share as on an 31st January, 2018 to the cost of acquisition.
- For Capital gain computation, consider whichever is higher. This is the grandfathering clause. Receiving certain benefits for making decisions under the old law.
Look at the below table for an example:
| Particulars | Gain FMV > Cost | Gain FMV < Cost | Loss FMV > Cost | Loss FMV < Cost |
| No. of shares (a) | 1,000 | 1,000 | 1,000 | 1,000 |
| Sale price p.u. (b) | 400 | 400 | 400 | 400 |
| Cost price p.u. (c) | 300 | 300 | 450 | 450 |
| FMV p.u. as on 31st Jan 2018 (d) | 350 | 200 | 500 | 200 |
| Cost or FMV, whichever is higher (e) | 350 | 300 | 500 | 450 |
| Total sale consideration (a × b) | 4,00,000 | 4,00,000 | 4,00,000 | 4,00,000 |
| Cost of Acquisition (a × e) | 3,50,000 | 3,00,000 | 5,00,000 | 4,50,000 |
| LTCG / (LTCL) | 50,000 | 1,00,000 | (1,00,000) | (50,000) |
LTCG Exemption Limit
LTCG has the benefit of a complete basic exemption limit in addition to the Rs 1.25 lakh limit u/s 112A.In case the individual has not used up the basic exemption limit, refer below for example.
Now, for example, for taxability in the new regime, an individual has a total income of Rs 5 lakh of which long term capital gains is Rs 2 lakh (post considering the 112A exemption) and other income is Rs 3 lakh.
The basic exemption limit for FY 2025-26 is Rs 4 lakh. Hence, the basic exemption limit unutilised by other income is Rs 1 lakh (Rs 4 lakh - Rs 3 lakh).
This unutilised or shortfall amount is provided as a benefit to the capital gain. The updated taxable capital gain would be Rs 1 lakh (Rs 2 lakh - Rs 1 lakh shortfall) which would be taxed at special rate of 12.5% i.e. Rs 12,500 plus applicable cess.
Hence, it can be derived that if an individual earns upto Rs 5.25 Lakh as LTCG without any other source of taxable income, there is no tax liability that would arise (provision of unutilised basic exemption limit of Rs 4 lakh and Rs 1.25 lakh of exemption u/s 112A).
Summary or Key Takeaways
- Determine the purchase date of the share and accordingly derive the cost to be considered in the capital gain calculation
- Tax rate of 12.5% applies
- Any LTCL can be carried for 8 years and set off against STCG and LTCG.
- LTCG can enjoy the benefit of the basic exemption limit, subject to the calculation above
- Rebate u/s 87A does not apply to LTCG.
CAclubindia
