How to Calculate Capital Gains Online and Offline?

Capital gain is a profit that arises from selling a capital asset at an amount above the value you paid while purchasing that asset. Capital assets comprise investment products such as stocks, mutual funds and real estate products. Two types of capital gains are available – long-term and short-term capital gains.

If you are eager to know how to calculate capital gains and their other vital aspects, keep scrolling.

What Are the Online and Offline Procedures to Calculate Capital Gains?

Take a look at the online and offline procedures to calculate capital gains without hassles:

Online Procedure to Calculate Capital Gains

You can find tools such as a capital gains calculator online to calculate capital gains without manual effort and obtain an approximate result. You need to enter the following information -

The selling price of an asset
The purchasing price of an asset
Month, date, and year of the purchase or sale
Details of investment, for example, investment in real estate, shares, gold, debt or equity funds etc.

After entering these details, you can access the following information -

Investment type
Type of capital gains, that is, long or short-term capital gains
Cost Inflation Index of the purchasing and selling year of an asset
Difference between the selling and purchasing price
The time gap between the selling and purchasing an asset
Indexed cost of buying an asset
Long-term capital gains with and without indexation

Offline Procedure to Calculate Capital Gains

If you do not have access to the internet and are not comfortable using an online tool such as a capital gains calculator, don't fret. Instead, follow the offline procedure to calculate long-term and short-term capital gains manually using a simple formula as mentioned below.

What Are Long-term Capital Gains?

Long-term capital gain is generated from selling an investment product you held for over 12 months. The long-term capital gain formula is as follows -

LTCG = Full value of consideration – (indexed acquisition cost + indexed improvement cost + transfer cost of an asset)

whereas,

The indexed acquisition cost of an asset = acquisition cost x cost inflation index of the acquisition or selling year

Indexed improvement cost of an asset = improvement cost x cost inflation index of the selling year or the year in which improvement has been made in an asset

While evaluating long-term capital gains, you must consider the cost inflation index. The cost inflation index applies to acquisition and improvement costs and is then subtracted from the full consideration value. Its application aims to adjust the rising cost of an asset due to inflation, which increases the base cost and decreases capital gains.

How to Calculate Long-Term Capital Gains?

Let's take an example to understand how to calculate capital gains after selling a property using the following formula mentioned above-

Mr Ashok purchased a land plot worth ₹10,00,000 in the year 2011. In January 2021, he sold this property at ₹30,00,000.

So, the question is – how much will be the long-term capital gain and how to calculate tax capital gains? Here is the following calculation -

Particulars	Amount
Purchasing cost	₹10,00,000
Selling price	₹30,00,000
Improvement cost	NIL
Cost inflation index (index for the FY 2020-21/index for the FY 2011-12; 301/184)	₹1.63
Indexed purchasing cost (CII x purchasing Cost; 1.63 x ₹10,00,000)	₹16,30,000
LTCG (selling price – indexed purchasing cost)	₹13,70,000
Tax rate on LTCG	20%
Tax payable (20% of ₹13,70,000)	₹2,74,000

However, you can avoid using indexation while computing capital gains from equity shares and mutual funds, and you are liable to pay 10% of tax on capital gains instead of 20%.

What Are Short-term Capital Gains?

Short-term gain arises from selling a capital asset owned for less than a year. The formula to calculate short-term capital gains is as follows -

STCG = full value consideration – (acquisition cost + improvement cost + transfer cost of an asset).

How to Calculate Short-Term Capital Gains?

Let's understand how to calculate short-term capital gains after selling a property using the formula mentioned above:

Mr Akash is a salaried individual and bought a property worth ₹16,00,000 in December 2020 and sold it in September 2021 at ₹26,00,000. The brokerage cost is ₹12,000.

So, the question is – how much will be the short-term capital gain and the tax payable towards such profit? Here is the following calculation -

Particulars	Amount
Purchasing cost	₹16,00,000
Selling cost	₹26,00,000
Brokerage cost (Transfer Cost)	₹12,000
Improvement cost	NIL
Net sale consideration (₹26,00,000-₹12,000)	₹25,88,000
STCG (Net sale consideration - purchasing cost; ₹25,88,000-₹16,00,000)	₹9,88,000
Tax rate on STCG	The STCG arising from selling property other than securities will be taxed as per the income tax slab rate.

What Are the Tax Rates on Long-Term and Short-Term Capital Gains?

Take a look at the following table illustrating the tax rates on long-term and short-term capital gains -

Types of Capital Gains	Type of Transaction	Tax Rates
LTCG	Transfer or sale of equity-oriented fund units or equity shares	10% over and above ₹1,00,000
LTCG	Transfer or sale of a capital asset other than equity-oriented fund units or equity shares	20%
STCG	Transfer or sale of equity-oriented fund units or equity shares	15%
STCG	Transfer or sale of a capital asset other than equity-oriented fund units or equity shares	Added to the income tax return of a taxpayer and taxed as per the income tax slab rate

What Are the Tax Exemptions Available on Capital Gains?

Besides knowing how to calculate capital gains from the sale of property, go through the following list carefully to know about the tax exemption under each Section of the ITA and other ways to reduce tax liabilities on such profits:

Section 54

Section 54 of the ITA allows you to claim tax exemption on the capital gains obtained from selling a housing property if the latter is entirely utilised for purchasing or constructing two other housing properties. You can purchase a new house within 2 years or build a new home within 3 years of selling the old housing property.

Section 54F

This Section applies to capital gains generated from selling a long-term capital asset except for housing property. The entire amount needs to be invested in purchasing a new residential property before 1 year or after 2 years of the sale of the old property. Besides, the construction needs to be completed within 3 years of selling the old property.

Section 54EC

This Section of the ITA allows you to enjoy tax exemption when the entire profit arising from selling the first property is utilised to purchase specific bonds. The maximum investment limit into bonds issued by Rural Electrification Corporation (REC) and National Highway Authority of India (NHAI) is ₹50,00,000.

Section 54B

Individual taxpayers and Hindu Undivided Families can claim tax exemption on capital gains made from selling agricultural land. An assessee or his or her parents must use this land for agricultural purposes for 2 years before the sale of the land takes place. Moreover, the assessee must purchase agricultural land within 2 years of selling previous agricultural property. The tax exemption will be applicable on capital gain or the newly purchased asset, whichever is lower.

Investment in Capital Gains Account Scheme

If you cannot invest the capital gains till the date of filing income tax returns in a financial year in which you sold your previous property, you can deposit that profit in a public sector bank according to the Capital Gains Account Scheme 1988. However, if you do not invest that deposit within a period specified by the bank, then the deposit will be taxed.

Investment in Tools and Machinery for Manufacturing

If the capital gains made from selling a property are invested in building a small or medium scale industry, you cannot claim tax exemption. However, you can lower the tax burden on capital gains if the fund is invested in purchasing machinery for manufacturing within 6 months from selling the property.

Indian Citizens of Specific Age Can Claim Tax Exemption

Indian citizens below 60 years of age earning a taxable income below ₹2,50,000 can enjoy tax exemption on short-term capital gains.

Senior citizens earning a taxable income of up to ₹3,00,000 and falling between the age group of 60 to 80 years will be exempted from paying tax on capital gains.

At the same time, Indian residents above 80 years earning taxable income of ₹5,00,000 qualify to claim tax exemption on short-term capital gains.

Thus, knowing how to calculate capital gains is essential to understand the approximate funds available after selling a capital asset. Besides, reinvesting that money in the correct avenue will also help reduce the tax burden and maximise savings.

Frequently Asked Questions

✓ How to calculate capital gain earned from shares?

You can calculate short-term capital gains made from shares by deducting equity share's transfer cost and purchasing cost from its sale value. In the case of long-term capital gains, deduct transfer cost and indexed purchasing cost of an equity share from its total sale value.

✓ What is full value consideration in capital gain's calculation?

Full value consideration is receivable in cash or kind for received by a seller for selling or transferring a capital asset.

✓ Can HUFs and NRIs claim tax exemption on short-term capital gains?

Yes, NRIs and HUFs can enjoy tax exemption on short-term capital gains if the maximum taxable income is ₹2,50,000.