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TAX ON LONG-TERM CAPITAL GAINS

Introduction
Gain arising on transfer of capital asset is charged to tax under the head “Capital Gains”.
Income from capital gains is classified as “Short Term Capital Gains” and “Long Term
Capital Gains”. In this part you can gain knowledge about the provisions relating to tax
on Long Term Capital Gains.
Meaning of Capital Gains
Profits or gains arising from transfer of a capital asset are called “Capital Gains” and are
charged to tax under the head “Capital Gains”.
Meaning of Capital Asset
Capital asset is defined to include:
(a) Any kind of property held by an assessee, whether or not connected with business or
profession of the assessee.
(b) Any securities held by an FII which has invested in such securities in accordance with
the regulations made under the SEBI Act, 1992.
(c). Any ULIP to which exemption under section 10(10D) does not apply on account of
the applicability of the fourth & fifth proviso thereof.
However, the following items are excluded from the definition of “capital asset”:
(i) any stock-in-trade (other than securities referred to in (b) above), consumable
stores or raw materials held for the purposes of his business or profession ;
(ii) personal effects, that is, movable property (including wearing apparel and
furniture) held for personal use by the taxpayer or any member of his family
dependent on him, but excludes—
(a) jewellery;
(b) archaeological collections;
(c) drawings;
(d) paintings;
(e) sculptures; or
(f) any work of art.
“Jewellery"
includes—
a. ornaments made of gold, silver, platinum or any other precious metal or any alloy
containing one or more of such precious metals, whether or not containing any
precious or semi-precious stones, and whether or not worked or sewn into any

[As amended by Finance (No. 2) Act, 2024]

 wearing apparel;
b. precious or semi-precious stones, whether or not set in any furniture, utensil or
other article or worked or sewn into any wearing apparel;
(iii) Agricultural Land in India, not being a land situated:
a. Within jurisdiction of municipality, notified area committee, town area committee,
cantonment board and which has a population of not less than 10,000;
b. Within range of following distance measured aerially from the local limits of any
municipality or cantonment board:
i. not being more than 2 KMs, if population of such area is more than 10,000 but not
exceeding 1 lakh;
ii. not being more than 6 KMs , if population of such area is more than 1 lakh but not
exceeding 10 lakhs; or
iii. not being more than 8 KMs , if population of such area is more than 10 lakhs.
Population is to be considered according to the figures of last preceding census of
which relevant figures have been published before the first day of the year.
(iv) 61/2 per cent Gold Bonds,1977 or 7 per cent Gold Bonds, 1980 or National
Defence Gold Bonds, 1980 issued by the Central Government;
(v) Special Bearer Bonds, 1991;
(vi) Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 or deposit
certificates issued under the Gold Monetisation Scheme, 2016.
Following points should be kept in mind:
The property being capital asset may or may not be connected with the business or
profession of the taxpayer. E.g. Bus used to carry passenger by a person engaged in
the business of passenger transport will be his capital asset.
Any securities held by a Foreign Institutional Investor which has invested in such
securities in accordance with the regulations made under the Securities and Exchange
Board of India Act, 1992 will always be treated as capital asset, hence, such securities
cannot be treated as stock-in-trade.
Illustration
Mr. Kumar purchased a residential house in January, 2020 for Rs. 84,00,000. He sold the
house in April, 2024 for Rs. 90,00,000. In this case residential house is a capital asset of
Mr. Kumar and, hence, the gain of Rs. 6,00,000 arising on account of sale of residential
house will be charged to tax under the head “Capital Gains”.
Illustration
Mr. Kapoor is a property dealer. He purchased a flat for resale. The flat was purchased in
January, 2020 for Rs. 84,00,000 and sold in April, 2024 for Rs. 90,00,000. In this case
Mr. Kapoor is dealing in properties in his normal business. Hence, flat purchased by him
would form part of stock-in-trade of the business. In other words, for Mr. Kapoor flat is
not a capital asset and, hence, gain of Rs. 6,00,000 arising on account of sale of flat will
be charged to tax as business income and not as capital gain.

[As amended by Finance (No. 2) Act, 2024]

 Meaning of long-term capital asset and short-term capital asset
For the purpose of taxation, capital assets are classified into two categories as given
below :
Short-Term Capital Asset Long-Term Capital Asset
Any capital asset held by the taxpayer for a Any capital asset held by the taxpayer
period of not more than 24 months for a period of more than 24 months
immediately preceding the date of its immediately preceding the date of its
transfer will be treated as short-term capital transfer will be treated as long-term
asset. capital asset.
However, in respect of certain assets like However, in respect of certain assets
shares (equity or preference) which are like shares (equity or preference) which
listed in a recognised stock exchange in are listed in a recognised stock exchange
India (listing of shares is not mandatory if in India (listing of shares is not
transfer of such shares took place on or mandatory if transfer of such shares
before July 10, 2014), units of equity took place on or before July 10, 2014),
oriented mutual funds, listed securities like units of equity oriented mutual funds,
debentures and Government securities, listed securities like debentures and
Units of UTI and Zero Coupon Bonds, the Government securities, Units of UTI
period of holding to be considered is 12 and Zero Coupon Bonds, the period of
months instead of 24 months holding to be considered is 12 months
instead of 24 months

Notes:
1) The period of holding shall be considered as 36 months instead of 24 months in case
transfer of capital asset takes place before 23-07-2024.
2) For capital assets being unlisted shares of a company or immovable property such as
land or buildings, the holding period shall be 24 months to determine whether the asset
is classified as short-term or long-term, regardless of whether the transfer occurs before
or after 23-07-2024.

Illustration
Mr. Kumar is a salaried employee. In the month of April, 2015 he purchased a piece of
land and sold the same in December, 2024. In this case, land is a capital asset for Mr.
Kumar. He purchased land in April, 2015 and sold in December, 2024 i.e. after holding it
for a period of more than 24 months. Hence, land will be treated as long-term capital
asset.
Illustration
Mr. Raj is a salaried employee. In the month of April, 2023, he purchased a piece of land
and sold the same in December, 2024. In this case land is a capital asset for Mr. Raj. He
purchased land in April, 2023 and sold it in December, 2024, i.e., after holding it for a
period of less than 24 months. Hence, land will be treated as short-term capital asset.

[As amended by Finance (No. 2) Act, 2024]

Illustration
Mr. Vipul is a salaried employee. In the month of July, 2018, he purchased a piece of land
and sold the same in January 2025. In this case land is a capital asset for Mr. Vipul and it
was sold in the Assessment Year 2025-26. He purchased land in July, 2018 and sold it in
January 2025, i.e. after holding it for a period of more than 24 months. Hence land will
be treated as long-term capital asset.
Illustration
Mr. Raj is a salaried employee. In the month of April, 2023 he purchased equity shares of
SBI Ltd. (listed in BSE) and sold the same in December, 2024. In this case shares are
capital assets for Mr. Raj. He purchased shares in April, 2023 and sold them in
December, 2024, i.e., after holding them for a period of more than 12 months. Hence,
shares will be treated as long-term capital assets.
Illustration
Mr. Kumar is a salaried employee. In the month of April, 2024 he purchased equity
shares of SBI Ltd. (listed in BSE) and sold the same in January, 2025. In this case shares
are capital assets for Mr. Kumar. He purchased shares in April, 2024 and sold them in
January, 2025, i.e., after holding them for a period of less than 12 months. Hence, shares
will be treated as short-term capital assets.
Illustration
Mr. Kumar is a salaried employee. In the month of April, 2023 he purchased un-listed
shares of XYZ Ltd. and sold the same in January, 2025. In this case shares are capital
assets for Mr. Raj and to determine nature of capital gain, period of holding would be
considered as 24 months as shares are unlisted. He purchased shares in April, 2023 and
sold them in January, 2025, i.e., after holding them for a period of less than 24 months.
Hence, shares will be treated as Short Term Capital Assets.
Illustration
Mr. Raj is a salaried employee. In the month of April, 2014 he purchased un-listed shares
of XYZ Ltd. and sold the same in December, 2024. In this case shares are capital assets
for Mr. Raj and to determine nature of capital gain, period of holding would be
considered as 24 month as shares are unlisted. He purchased shares in April, 2014 and
sold them in December 2024, i.e., after holding them for a period of more than 24
months. Hence, shares will be treated as Long Term Capital Assets.
Mr. Vikas is a salaried employee. In the month of September, 2018 he purchased unlisted
shares of ABC ltd. and sold the same in May 2024. In this case, shares are sold in
assessment year 2025-26. Hence, period of holding for unlisted shares to be considered as
24 months.
Mr. Vikas purchased shares in September 2018 and sold them May 2024, i.e. after
holding them for a period of more than 24 months. Hence, shares will be treated as Long
Term Capital Assets.

[As amended by Finance (No. 2) Act, 2024]

Meaning of short-term capital gain and long-term capital gain
Gain arising on transfer of short-term capital asset is termed as short-term capital gain
and gain arising on transfer of long-term capital asset is termed as long-term capital gain.
However, there are few exceptions to this rule like gain on depreciable asset is always
taxed as short-term capital gain.
Illustration
In April, 2024 Mr. Raja sold his residential house property which was purchased in May,
2003. Capital gain on such sale amounted to Rs. 8,40,000. In this case the house property
is a long-term capital asset and, hence, gain of Rs. 8,40,000 will be charged to tax as
long-term capital gain.
Illustration
In April, 2024 Mr. Rahul sold his residential house property which was purchased in
May, 2022. Capital gain on such sale amounted to Rs. 8,40,000. In this case the house
property is a short-term capital asset and, hence, gain of Rs. 8,40,000 will be charged to
tax as short-term capital gain.
Reason for bifurcation of capital gains into long-term and short-term gains :–
The taxability of capital gains depends on the nature of gain, i.e., whether short-term or
long-term. Hence, to determine the taxability, capital gains are classified into short-term
capital gain and long-term capital gain. In other words, the tax rates for long-term capital
gain and short-term capital gain are different.
Computation of long-term capital gains
Long-term capital gain arising on account of transfer of long-term capital asset will be
computed as follows :

Particulars Rs.

Full value of consideration (i.e., Sales consideration of asset) XXXXX

Less: Expenditure incurred wholly and exclusively in connection with (XXXXX)

transfer of capital asset (E.g., brokerage, commission, advertisement
expenses, etc.).

Net sale consideration XXXXX

Less: Indexed cost of acquisition (*) (XXXXX)

Less: Indexed cost of improvement if any (*) (XXXXX)

Long-Term Capital Gains XXXXX

[As amended by Finance (No. 2) Act, 2024]

(*) Indexation is a process by which the cost of acquisition is adjusted against
inflationary rise in the value of asset. For this purpose, Central Government has notified
cost inflation index. The benefit of indexation is available only to long-term capital
assets. For computation of indexed cost of acquisition following factors are to be
considered:
 Year of acquisition/improvementYear of transfer
 Cost inflation index of the year of acquisition/improvementCost inflation index of the
year of transfer
Note: The Finance (No. 2) Act, 2024 removed the indexation benefit and introduced a
uniform tax rate of 12.5% on long-term capital gains. As per the amendment, no indexation
benefit is allowed while computing capital gain from long-term capital assets transferred on
or after 23-07-2024. However, the Government has introduced a grandfathering provision.
This provision allows resident individuals and resident HUFs to still apply indexation on
land or building acquired before 23-07-2024 and pay tax at the old rate of 20% if the tax
under the new law (i.e., tax calculated at 12.5% without indexation benefit) results in a
higher amount.
Indexed cost of acquisition is computed with the help of following formula :
Cost of acquisition × Cost inflation index of the year of transfer of capital asset
Cost inflation index of the year of acquisition

Indexed cost of improvement is computed with the help of following formula :

Cost of improvement × Cost inflation index of the year of transfer of capital asset
Cost inflation index of the year of improvement
The Central Government has notified the following Cost Inflation Indexes:-
Sl. No. Financial Year Cost Inflation Index
(1) (2) (3)
1 2001-02 100
2 2002-03 105
3 2003-04 109
4 2004-05 113
5 2005-06 117
6 2006-07 122
7 2007-08 129
8 2008-09 137
9 2009-10 148
10 2010-11 167
11 2011-12 184
12 2012-13 200
13 2013-14 220
14 2014-15 240
15 2015-16 254

[As amended by Finance (No. 2) Act, 2024]

 16 2016-17 264
17 2017-18 272
18 2018-19 280
19 2019-20 289
20 2020-21 301
21 2021-22 317
22 2022-23 331
23. 2023-24 348
24. 2024-25 363
Illustration
Mr. Raja purchased a piece of land in May, 2006 for Rs. 84,000 and sold the same in April, 2024 for Rs.
10,10,000 (brokerage Rs. 10,000). What will be the taxable capital gain in the hands of Mr. Raja?
In this case, the capital asset is transferred before 23-07-2024, therefore, the long term capital gain will be
computed as per the old provisions of the Act.

Particulars Rs.
Computation of capital gain will be as follows :
Full value of consideration (i.e., Sales consideration of asset) 10,10,000

Less: Expenditure incurred wholly and exclusively in connection with 10,000

transfer of capital asset (brokerage)

Net sale consideration 10,00,000

Less: Indexed cost of acquisition (*) 2,49,934

Less: Indexed cost of improvement, if any Nil

Long-Term Capital Gains 7,50,066

(*) The cost inflation index notified for the year 2006-07 is 122 and for the year 2024-25
is 363. Hence, the indexed cost of acquisition, i.e., the inflated cost of acquisition will be
computed as follows:
Cost of acquisition × Cost inflation index of the year of transfer of capital asset
Cost inflation index of the year of acquisition
Rs. 84,000 × 363 = Rs. 2,49,934
122

Illustration
Mr. Raja purchased a piece of land in May, 2006 for Rs. 84,000 and sold the same in August,
2024 for Rs. 10,10,000 (brokerage Rs. 10,000). What will be the taxable capital gain in the
hands of Mr. Raja?

[As amended by Finance (No. 2) Act, 2024]

In the instant case, the capital asset is transferred after 23-07-2024, Mr. Raja has option to
compute the capital gains as per both provisions [old and new as amended by the Finance (No.
2) Act, 2024]
Computation of Long term capital Gains as per the old provisions:

Particulars Rs.

Full value of consideration (i.e., Sales consideration of asset) 10,10,000

Less: Expenditure incurred wholly and exclusively in connection with 10,000

transfer of capital asset (brokerage)

Net sale consideration 10,00,000

Less: Indexed cost of acquisition (*) 2,49,934

Less: Indexed cost of improvement, if any Nil

Long-Term Capital Gains 7,50,066

(*) The cost inflation index notified for the year 2006-07 is 122 and for the year 2024-25 is 363.
Hence, the indexed cost of acquisition, i.e., the inflated cost of acquisition will be computed as
follows:
Cost of acquisition × Cost inflation index of the year of transfer of capital asset
Cost inflation index of the year of acquisition
Rs. 84,000 × 363 = Rs. 2,49,934
122
Computation as per the amended provision
Particulars Rs.

Full value of consideration (i.e., Sales consideration of asset) 10,10,000

Less: Expenditure incurred wholly and exclusively in connection with 10,000

transfer of capital asset (brokerage)

Net sale consideration 10,00,000

Less: Cost of acquisition 84,000

Less: Cost of improvement, if any Nil

Long-Term Capital Gains 9,16,000

[As amended by Finance (No. 2) Act, 2024]

 Note: Mr. Raja has option to pay tax at the rate of 20% on Rs. 7,50,066 or at the rate of
12.5% on Rs. 9,16,000, whichever is less. [Tax rates on long-term capital gains are discussed
in below paragraph]

Tax on long-term capital gain

General provision
The long-term capital gain is chargeable to tax at the rate of 12.5%. Further, the benefit of
indexation shall not be available to the assessee while computing the amount of long-term
capital gain.

Notes:
(1) The Finance (No. 2) Act, 2024 has provided a uniform tax rate of 12.5% on long-term
capital gain arising from transfer of any capital asset on or after 23-07-2024. Where the
long-term capital asset is transferred on or before 22-07-2024, the long-term capital gain
shall be taxable at the rate of 20%.
(2) The Finance (No. 2) Act, 2024 has provided that no indexation benefit shall be available in
respect of the long-term capital assets transferred on or after 23-07-2024. However, a
grandfathering is allowed for land or building in case of resident individual/HUF.
(3) As per grandfathering provisions, if the amount of tax under the new law (i.e., the law as
amended by the Finance (No. 2) Act, 2024) exceeds the amount of tax under the old law
(i.e., the law as it stood immediately before the amendment by the Finance (No. 2) Act,
2024), the excess amount shall be ignored. However, this grandfathering provision applies
only to resident individuals or Hindu Undivided Families (HUFs) and only for land or
buildings acquired before July 23, 2024.

In case of Specified listed securities

If the long-term capital gain is arising from the transfer of equity shares, units of equity-oriented
fund or units of business trust, it shall be chargeable to tax under Section 112A. The tax shall be
levied at the rate of 12.5% (if specified securities are transferred on or before 22-07-2024, the
long-term capital gain shall be taxable at the rate of 10%) on the capital gains in excess of Rs.
125,000.
This concessional tax rate applies if the Securities Transaction Tax (STT) is paid at the time of
transfer of such securities. Further, in case of equity shares, STT should have been paid at the
time of acquisition also, subject to certain exceptions.
Special provision related to cost of acquisition
The cost of acquisitions of a listed equity share acquired by the taxpayer before February 1,
2018, shall be deemed to be the higher of following:
a) The actual cost of acquisition of such asset; or
b) Lower of following:
(i) Fair market value of such shares as on January 31, 2018; or

[As amended by Finance (No. 2) Act, 2024]

 (ii) Actual sales consideration accruing on its transfer.
The Fair market value of listed equity share shall mean its highest price quoted on the
stock exchange as on January 31, 2018. However, if there is no trading in such shares on
January 31, 2018, the highest price of such share on a date immediately preceding
January 31, 2018 on which trading happens in that share shall be deemed as its fair
market value.
In case of units which are not listed on recognized stock exchange, the net asset value of
such units as on January 31, 2018 shall be deemed to be its FMV.
In a case where the capital asset is an equity share in a company which is not listed on a
recognised stock exchange as on 31-1-2018 but listed on the date of transfer, the cost of
unlisted shares as increased by cost inflation index for the financial year 2017-18 shall be
deemed to be its FMV.
Further, the Finance (No. 2) Act, 2024 has also provided mechanism for computation of fair
market value of unlisted shares transferred under an offer for sale to the public included in an
initial public offer.
In cases where equity shares were not listed on a recognized stock exchange as of January 31,
2018, or where the shares became the property of the assessee in exchange for unlisted shares as
of that date (through transactions not considered as transfers under Section 47), and are
subsequently listed on such an exchange after the transfer (pertaining to the sale of unlisted equity
shares through an offer for sale to the public as part of an initial public offering); the FMV shall
be as follows:

Cost Inflation Index of 2017-18 (i.e., 272)

Cost of
X CII for the year in which shares were first held by the
acquisition
assessee or 2001-02, whichever is later

In case of FPIs or specified category-III AIFs

Long-term capital gain arising from transfer of securities held by foreign portfolio investor
(FPI) or category-III AIF specified under Section 10(4D) is chargeable to tax at the rate of
12.5% (if securities are transferred on or before 22-07-2024, the long-term capital gain shall
be taxable at the rate of 10%).
However, where the long-term capital gain arises from the transfer of specified securities,
being equity shares, units of equity-oriented mutual fund or units of business trust, the tax
shall be levied on the capital gains in excess of Rs. 1,25,000 if STT has been paid in respect
of such transaction.
Here, it is to be noted that the benefit of foreign currency fluctuation shall not be allowed to
FPIs or specified fund while computing capital gain.
Illustration
Mr. Janak is a salaried employee. In the month of January, 2016 he purchased 100 shares
of X Ltd. @ Rs. 1,400 per share from Bombay Stock Exchange. These shares were sold
through BSE in August, 2024 @ Rs. 2,600 per share. The highest price of X Ltd. share
quoted on the stock exchange on January 31, 2018 was Rs. 1,800 per share. What will be
the nature of capital gain in this case?

[As amended by Finance (No. 2) Act, 2024]

**
Shares were purchased in January, 2016 and were sold in August, 2024, i.e., sold after
holding them for a period of more than 12 months and, hence, the gain will be long-term
capital gain (LTCG).
In the given case, shares are sold after holding them for a period of more than 12 months,
shares are sold through recognised stock exchange and the transaction is liable to STT.
Therefore, section 112A is applicable in this case.
The cost of acquisition of X Ltd. shares shall be higher of:
a) Cost of acquisition i.e., 1,40,000 (1,400 × 100);
b) Lower of:
a. Highest price quoted as on 31-1-2018 i.e., 1,80,000 (1,800 × 100);
b. Sales consideration i.e., 2,60,000 (2,600 × 100)
Thus, the cost of acquisition of shares shall be Rs. 1,80,000.Accordingly, Long-term
capital gains in hands of Mr. Janak would be Rs. 80,000 (i.e., 2,60,000 – 1,80,000). Since
long-term capital gains doesn’t exceed Rs. 1,25,000, nothing is taxable in hands of Mr.
Janak.
Illustration
Mr. Saurabh is a salaried employee. In the month of July, 2017 he purchased 100 shares
of XYZ Ltd. @ Rs. 2,000 per share from Bombay Stock Exchange. These shares were
sold through NSE in June, 2024 @ Rs. 5,200 per share. The highest price of XYZ Ltd.
share quoted on the stock exchange on January 31, 2018 was Rs. 3,800 per share. What
will be the nature of capital gain in this case?
**

Shares were purchased in July, 2017 and were sold in June, 2024, i.e., sold after holding
them for a period of more than 12 months and, hence, the gain will be long-term capital
gain (LTCG).
In the given case, shares are sold after holding them for a period of more than 12 months,
shares are sold through a recognised stock exchange, and the transaction is liable to STT.
Therefore, section 112A is applicable in this case.
The cost of acquisition of XYZ Ltd. shares shall be higher of:
a) Cost of acquisition i.e., 2,00,000 (2,000 × 100);
b) Lower of:
(i) Highest quoted price as on 31-1-2018 i.e., 3,80,000 (3,800 × 100);
(ii) Sales consideration i.e., 5,20,000 (5,200 × 100)
Thus from above, the cost of acquisition of shares shall be Rs. 3,80,000. Accordingly,
Long-term capital gains taxable in hands of Mr. Saurabh would be Rs. 1,40,000 (i.e.,
5,20,000 – 3,80,000). Since the long-term capital gains exceeds Rs. 1,25,000, hence it
will be chargeable to tax under section 112A. In this case, the shares are transferred
before 23-07-2024, Mr, Saurabh would be liable to pay tax at the rate of 10% on Rs.
15,000 i.e., gains exceeding Rs. 1,25,000. However, if the shares were transferred on
or after 23-07-2024, Mr. Saurabh would be liable to pay tax at the rate of 12.5% on

[As amended by Finance (No. 2) Act, 2024]

the capital gains exceeding Rs. 1,25,000.
Illustration
Mr. Kumar (a non-resident) purchased equity shares (listed) of Shyamal Ltd. in
December 1995 for Rs. 28,100. These shares are sold (outside recognised stock
exchange) in October, 2024 for Rs. 5,00,000. He does not have any other taxable income
in India. What will be his tax liability.
**
In this situation, the shares are transferred after 23-07-2024, accordingly, the resultant capital
gain will be chargeable to tax at the rate of 12.5%. The capital gain will be computed as
follows:
Particulars Rs.

Full value of consideration 5,00,000

Less: Cost of acquisition 28,100

Taxable Gain 4,71,900
------
Exemption limit 1,25,000
Capital Gains liable to tax 3,46,900
Tax @ 12.5% on Rs. 4,71,900 ------ 43,362.50

From the above computation, it is clear that Mr. Kumar is liable to pay tax of 43,362.50.
(excluding cess as applicable).
Illustration
Mr. Kumar (a non-resident) purchased a piece of land in December, 2006 for Rs. 28,100
and sold the same, in April, 2024 for Rs. 5,00,000. Can he claim the option of not
availing of the indexation and paying tax @ 10% on the capital gain?
What if the land was sold in December 2024?
**
In this situation, the capital asset is transferred before 23-07-2024, therefore, the resulting
capital gain will be computed after giving indexation benefit and chargeable to tax @
20% (plus surcharge and cess as applicable). The computation in this case will be as
follows:

[As amended by Finance (No. 2) Act, 2024]

 Particulars (Rs.)
Full value of consideration 5,00,000
Less: Indexed cost of acquisition (Rs. 28,100 × 363/122) 83,609
Less: Indexed cost of improvement Nil
Long term capital gain 4,16,391
Tax @ 20% on Rs. 4,16,391 83,278

Add: Health & education cess @ 4% 3,331

Net tax payable 86,609

If Mr. Kumar sold the land in December 2024, the tax liability would be as follows:

Since the capital asset, being a land, is sold after 23-07-2024, the amended provisions by the
Finance (No.2) Act, 2024 will be applicable to Mr. Kumar. Accordingly, indexation benefit
will not be available to Mr. Kumar on such capital asset and tax at the rate of 12.5% will be
applicable on the computed capital gains. The Computation of the long term capital gains will
be as follows:

Particulars (Rs.)
Full value of consideration 5,00,000
Less: Cost of acquisition 28,100
Less: Cost of improvement Nil
Long term capital gain 4,71,900
Tax @ 12.5% on Rs. 4,71,900 58,988

Add: Health & education cess @ 4% 2,360

Net tax payable 61,348

In this case, the capital gain will be computed only as per the amended provisions introduced by
the Finance (No.2) Act, 2024. Although the capital asset being sold is a piece of land which was
acquired before July 23, 2024, grandfathering provisions are not be applicable as same are
applicable only to a resident individuals or HUF.
Illustration

[As amended by Finance (No. 2) Act, 2024]

 Mr. Kumar, resident in India, purchased a piece of land in December, 2006 for Rs. 28,100
and sold the same, in December, 2024 for Rs. 5,00,000. What will be the tax liability?
Since the capital asset, being a land, is sold after 23-07-2024, the amended provisions by the
Finance (No.2) Act, 2024 will be applicable to Mr. Kumar. Accordingly, indexation benefit
will not be available to Mr. Kumar on such capital asset and tax at the rate of 12.5% will be
applicable on the computed capital gains. The computation of the long term capital gains will
be as follows:

Particulars (Rs.)
Full value of consideration 5,00,000
Less: Cost of acquisition 28,100
Less: Cost of improvement Nil
Long term capital gain 4,71,900
Tax @ 12.5% on Rs. 4,71,900 58,988

Add: Health & education cess @ 4% 2,360

Net tax payable 61,348

In this case, the capital asset being sold is a piece of land which was acquired before July 23,
2024, and Mr. Kumar is a resident individual. Therefore, the grandfathering provisions apply.
If the tax computed under the new law (i.e., the law as amended by the Finance (No. 2) Act,
2024) exceeds the amount of tax under the old law (i.e., the law as it stood immediately before
the amendment by the Finance (No. 2) Act, 2024), the excess amount shall be ignored.
The capital gains as per the old provisions will be computed as follows:
Particulars (Rs.)
Full value of consideration 5,00,000
Less: Indexed cost of acquisition (Rs. 28,100 × 363/122) 83,609
Less: Indexed cost of improvement Nil
Long term capital gain 4,16,391
Tax @ 20% on Rs. 4,16,391 83,278

Add: Health & education cess @ 4% 3,331

Net tax payable 86,609

[As amended by Finance (No. 2) Act, 2024]

In this case, the tax liability is lower under the old law. Therefore, Mr. Kumar can pay the tax
calculated under the old law, and the additional tax computed under the new law shall be
ignored.
Adjustment of LTCG against the basic exemption limit
Basic exemption limit means the level of income up to which a person is not required to
pay any tax. The basic exemption limit applicable in case of an individual for the
financial year 2024-25 will be Rs. 3,00,000. However, where an individual chooses to
opt out from the default tax regime under section 115BAC is as follows :
 For resident individual of the age of 80 years or above, the exemption limit is Rs.
5,00,000.
 For resident individual of the age of 60 years or above but below 80 years, the
exemption limit is Rs. 3,00,000.
 For resident individual of the age of below 60 years, the exemption limit is Rs.
2,50,000.
For non-resident individual, irrespective of the age of the individual, the
exemption limit is Rs. 2,50,000.
For HUF, the exemption limit is Rs. 2,50,000.
Illustration: Basic exemption limit
Mr. Kapoor (resident and age 25 years) is a salaried employee earning a salary of Rs.
1,84,000 per annum. Apart from salary income, he has earned interest on fixed deposit of
Rs. 6,000. He does not have any other income. What will be his tax liability for the year
2024-25?
**
The basic exemption limit for an individual is Rs. 3,00,000. However, For resident
individual of age of below 60 years, the basic exemption limit is Rs. 2,50,000 if he
chooses to opt out of the default tax regime under section 115BAC. In this case the
taxable income of Mr. Kapoor is Rs. 1,90,000 (Rs. 1,84,000 + Rs. 6,000), which is below
the basic exemption limit, hence, his tax liability will be nil.
Illustration: Basic exemption limit
Mr. Viren (resident and age 62 years) is a businessman. His taxable income for the year
2024-25 is Rs. 2,25,200. He does not have any other income. What will be his tax
liability for the year 2024-25?
**
The basic exemption limit for an individual is Rs. 3,00,000 (Rs. 2,50,000 if he chooses to
opt out of the default tax regime under section 115BAC). In this case, the taxable income
of Mr. Viren is Rs. 2,25,200, which is below the basic exemption limit, hence, his tax
liability will be nil.
Illustration: Basic exemption limit
Mrs. Raj (resident and age 82 years) is a doctor. Her taxable income for the year 2024-25
is Rs. 4,84,000. She does not have any other income. What will be her tax liability for the
year 2024-25?

[As amended by Finance (No. 2) Act, 2024]

**
The basic exemption limit for an individual is Rs. 3,00,000. However, for resident
individual of the age of 80 years and above, the basic exemption limit is Rs. 5,00,000, if
he chooses to opt out of the default tax regime under section 115BAC. In this case, the
taxable income of Mrs. Raj is Rs. 4,84,000, which is below the basic exemption limit of
Rs. 5,00,000, hence, her tax liability will be nil.
Illustration: Basic exemption limit
Mr. Raj (a non-resident and age 82 years) is a retired person. He is residing in Canada.
He owns a house in Mumbai which is given on rent. The taxable rental income for the
year 2024-25 amounts to Rs. 1,84,000. What will be his tax liability for the year 2024-
25?
**
For non-resident individual, irrespective of the age, the basic exemption limit is Rs.
3,00,000 (Rs. 2,50,000 if he chooses to opt out of the default tax regime under section
115BAC). In this case the taxable income of Mr. Raj is Rs. 1,84,000, which is below the
basic exemption limit, hence, his tax liability will be nil.
Adjustment of LTCG against the basic exemption limit
In the preceding illustrations we observed that if the income is below the basic exemption
limit, then there will be no tax liability. Now a question arises that can an individual
adjust the basic exemption limit against long-term capital gain? The answer will depend
on the residential status of the individual (i.e., resident or non-resident). The provisions in
this regard are as follows :
Only a resident individual/HUF can adjust the exemption limit against LTCG. Thus, a
non-resident individual and non-resident HUF cannot adjust the exemption limit against
LTCG.
A resident individual can adjust the LTCG but such adjustment is possible only after
making adjustment of other income. In other words, first income other than LTCG is to
be adjusted against the exemption limit and then the remaining limit (if any) can be
adjusted against LTCG.
Illustration
Mr. Kapoor (age 67 years and resident) is a retired person. He purchased a piece of land
in December, 2013 and sold the same in April, 2024. Taxable long-term capital gain on
such sale amounted to Rs. 1,84,000. Apart from gain on sale of land, he is not having any
other income. What will be his tax liability for the year 2024-25?
*
For resident individual of the age of 60 years and above but below 80 years, the basic
exemption limit is Rs. 3,00,000. Further, a resident individual can adjust the basic
exemption limit against LTCG. In this case, LTCG of Rs. 1,84,000 can be adjusted
against the basic exemption limit. In other words, Mr. Kapoor can adjust the LTCG on
sale of land against the basic exemption limit.
Considering the above discussion, the tax liability of Mr. Kapoor for the year 2024-25
will be nil.

[As amended by Finance (No. 2) Act, 2024]

Illustration
Mr. Kapoor (age 67 years and non-resident) is a retired person. He purchased a piece of
land (at Delhi) in December, 2013 and sold the same in April, 2024. Taxable long-term
capital gain on such sale amounted to Rs. 1,84,000. Apart from gain on sale of land, he is
not having any other income. What will be his tax liability for the year 2024-25?
*
For non-resident individual of any age, the basic exemption limit is Rs. 3,00,000 (Rs.
2,50,000 if opts out of the default tax regime). Further, a non-resident individual cannot
adjust the basic exemption limit against LTCG. Hence, in this case the exemption limit
cannot be adjusted against LTCG. In other words, Mr. Kapoor cannot adjust the LTCG
on sale of land against the basic exemption limit. Thus, LTCG of Rs. 1,84,000 will be
charged to tax @ 20% (plus health & education cess @ 4%). Thus, the tax liability will
come to Rs. 38,272.
Illustration
Mr. Kapoor (age 67 years and resident) is a retired person earning a monthly pension of
Rs. 5,000. He purchased gold in December, 2012 and sold the same in April, 2024.
Taxable LTCG amounted to Rs. 3,70,000. Apart from pension income and gain on sale of
gold he is not having any other income. What will be his tax liability for the year 2024-
25? Assume, Mr. Kapoor has opted out from default new tax regime (section 115BAC).
*
For resident individual of the age of 60 years and above but below 80 years, the basic
exemption limit is Rs. 3,00,000. Further, a resident individual can adjust the basic
exemption limit against LTCG. However, such adjustment is possible only after adjusting
income other than LTCG. In this case, he is having pension income of Rs. 60,000 (Rs.
5,000 × 12) and LTCG on gold of Rs. 3,70,000. Thus, first we have to adjust the pension
income against the exemption limit and the balance limit will be adjusted against LTCG.
The basic exemption limit in this case is Rs. 3,00,000, after adjustment of pension income
of Rs. 60,000 from the exemption limit of Rs. 3,00,000 the balance limit available will
come to Rs. 2,40,000. The balance of Rs. 2,40,000 will be adjusted against LTCG.
Total LTCG on gold is Rs. 3,70,000 and the available limit is Rs. 2,40,000, hence, the
balance LTCG left after adjustment of Rs. 2,40,000 will come to Rs. 1,30,000. The gain
of Rs. 1,30,000 will be charged to tax @ 20% (plus health & education cess @ 4%).
Thus, the tax liability before cess will come to Rs. 26,000 and after deducting rebate of
Rs. 12,500 as per section 87A, he would be liable to pay tax of Rs. 14,040 (including
health & education cess @ 4%).
Illustration
Mr. Gagan (age 67 years and non-resident) is a retired person earning a monthly pension
of Rs. 5,000 from Indian employer. He purchased a piece of land in Delhi in December,
2012 and sold the same in April, 2024. Taxable LTCG amounted to Rs. 2,20,000. Apart
from pension income and gain on sale of land he is not having any other income. What
will be his tax liability for the year 2024-25?

[As amended by Finance (No. 2) Act, 2024]

*
For non-resident individuals, irrespective of age, the basic exemption limit is Rs.
3,00,000 (Rs. 2,50,000 if opts out from the default tax regime). Further, a non-resident
individual cannot adjust the basic exemption limit against LTCG covered under section
112. In other words, Mr. Gagan can adjust the pension income against the basic
exemption limit but the remaining exemption limit cannot be adjusted against LTCG on
sale of land.
The basic exemption limit in this case will be adjusted against pension income of Rs.
60,000. The balance limit cannot be adjusted against LTCG. Hence, in this case Mr.
Gagan has to pay tax @ 20% (plus health & education cess @ 4%) on LTCG of Rs.
2,20,000. Thus, the tax liability will come to Rs. 45,760.
Deductions under sections 80C to 80U and LTCG
No deduction under sections 80C to 80U is allowed from long-term capital gains.
Illustration
Mr. Kapoor (age 57 years and resident) is a retired person. He purchased a piece of land
in December, 2012 and sold the same in April, 2024. Taxable LTCG on such sale
amounted to Rs. 6,00,000. Apart from gain on sale of land he is not having any income.
He deposited Rs. 1,00,000 in Public Provident Fund (PPF) and Rs. 50,000 in NSC. He
wants to claim deduction under section 80C on account of Rs. 1,50,000 deposited in PPF
and NSC. Can he do so?
**
Deduction under sections 80C to 80U cannot be claimed from long-term capital gains.
Hence, Mr. Kapoor cannot claim deduction under section 80C of Rs. 1,50,000 from
LTCG of Rs. 6,00,000. The taxable income of Mr. Kapoor will be computed as follows :

Particulars Rs.

Long-Term Capital Gains 6,00,000

Gross Total Income 6,00,000

Less: Deduction under sections 80C to 80U Nil

Total Income or Taxable Income 6,00,000

He can claim basic exemption of Rs. 2,50,000 (being resident individual) and has to pay
LTCG on remaining Rs. 3,50,000 @ 20% (+HEC). Thus, his tax liability before cess will
come to Rs. 70,000 and he would be liable to pay tax of Rs. 72,800 (including cess @
4%).

[As amended by Finance (No. 2) Act, 2024]

 MCQ ON TAX ON LONG-TERM CAPITAL GAINS

Q1. Any securities held by a Foreign Institutional Investor which has invested in such
securities in accordance with the regulations made under the Securities and Exchange
Board of India Act, 1992 will always be treated as capital asset, hence, such securities
cannot be treated as stock-in-trade.
(a) True (b) False
Correct answer : (a)
Justification of correct answer :
Any securities held by a Foreign Institutional Investor which has invested in such
securities in accordance with the regulations made under the Securities and Exchange
Board of India Act, 1992 will always be treated as capital asset, hence, such securities
cannot be treated as stock-in-trade.
Thus, the statement given in the question is true and hence, option (a) is the correct
option.
Q2. Listed equity shares will be treated as long-term capital assets if they are held by the
taxpayer for a period of more than months immediately preceding the date of its
transfer.
(a) 12 (b) 24
(c) 36 (d) 48
Correct answer : (a)
Justification of correct answer :
Any capital asset held by the taxpayer for a period of more than 24 months immediately
preceding the date of its transfer will be treated as long-term capital asset. However, in
respect of certain capital assets like shares (equity or preference) which are listed in a
recognised stock exchange in India, units of equity oriented mutual funds, listed
debentures, zero coupon bonds and Government securities the period of holding will be
12 months instead of 24 months.
Thus, option (a) is the correct option.
Q3. In computing indexed cost of acquisition is not required.
(a) Cost of acquisition
(b) Cost inflation index of the year of improvement of capital asset
(c) Cost inflation index of the year of acquisition of capital asset
(d) Cost inflation index of the year of transfer of capital asset
Correct answer : (b)
Justification of correct answer :

[As amended by Finance (No. 2) Act, 2024]

Indexed cost of acquisition is computed with the help of following formula:
Cost of acquisition × Cost inflation index of the year of transfer of capital asset
Cost inflation index of the year of acquisition
Thus, option (b) is the correct option.
Q4. Indexed cost of improvement is computed with the help of following formula:
Cost of improvement × Cost inflation index of the year of transfer of capital asset
Cost inflation index of the year of improvement
(a) True (b) False
Correct answer : (a)
Justification of correct answer :
Indexed cost of improvement is computed with the help of following formula:
Cost of improvement × Cost inflation index of the year of transfer of capital asset
Cost inflation index of the year of improvement
Thus, the statement given in the question is true and hence, option (a) is the correct
option.
Q5. As per section , long-term capital gain arising in excess of Rs.
1,25,000 on transfer of equity shares or units of equity oriented mutual fund or units of
business trust is chargeable to tax @ 12.5% in the hands of any person, if specific
conditions are satisfied in this regard.
a) 10(38) b) 112
c) 112A d) 115
Correct answer : (c)
Justification of correct answer :

As per section 112A, long-term capital gain arising in excess of Rs. 1,25,000 on transfer
of equity shares or units of equity oriented mutual fund or units of business trust is
chargeable to tax @ 12.5% in the hands of any person, if specific conditions are satisfied
inthis regard.
Q6. Generally, long-term capital gain is charged to tax under section 112 @ (plus
surcharge andcess as applicable) if the asset is transferred before 23-07-2024.
(a) 10% (b) 15%
(c) 20% (d) 30%
Correct answer : (c)
Justification of correct answer :

[As amended by Finance (No. 2) Act, 2024]

Generally, long-term capital gain is charged to tax @ 20% (plus surcharge and cess as
applicable) under section 112, if the asset is transferred before 23-07-2024. However, if the
asset is transferred on or after 23-07-2024, the long-term capital gains will be chargeable to
tax at the rate of 12.5%.
Thus, option (c) is the correct option.
Q7. A resident as well as a non-resident individual and HUF can adjust the exemption
limit against long-term capital gains.
(a) True (b) False
Correct answer : (b)
Justification of correct answer :
Only a resident individual and resident HUF can adjust the exemption limit against
LTCG. Thus, a non-resident individual/HUF cannot adjust the exemption limit against
LTCG.
Thus, the statement given in the question is false and hence, option (b) is the correct
option.
Q8. No deduction under sections 80C to 80U is allowed from long-term capital gains.
(a) True (b) False
Correct answer : (a)
Justification of correct answer :
No deduction under sections 80C to 80U is allowed from long-term capital gains.
Thus, the statement given in the question is true and hence, option (a) is the correct
option.

[As amended by Finance (No. 2) Act, 2024]