In most instances, profits on the transfer of any capital asset owned for more than 36 months is known as long-term capital gains. Taxes on these earnings are known as long-term capital gains tax.
However, a few assets are considered long-term, even if they are held for 12 months or more. These include:
- Quoted or unquoted Unit Trust of India bonds.
- Securities, such as debentures, bonds, and government securities, which are listed on a recognised Indian stock exchange.
- Equity mutual funds.
- Zero-coupon bonds.
- Equities or preference shares of a company listed on a recognised Indian stock exchange.
Unlisted shares and immovable property including land and building held for more than 24 months will be considered as long-term capital assets.
Calculation of long-term capital gains would require you to follow a few simple steps:
- Step 1: Start with the total amount received after capital asset sale.
- Step 2: Deduct the cost of transfer + indexed cost of acquisition + indexed cost of improvement.
Now, to ensure proper calculation, you must know what each of these terms represents. Read on –
- Cost of transfer = Expenses incurred for advertising, deals, and legal expenses incurred and wholly and exclusively for the transfer
- Indexed cost of acquisition = Cost of inflation index (CII) for the year of transfer X acquisition cost/ (CII) for the year of acquisition or FY 2001-02, whichever is later
- Indexed cost of improvement = Improvement expenses X(CII) for the year of transfer / (CII) for the year of asset improvement
[Source]