Capital gains are the profits that an investor makes from selling an asset at a price higher than its purchase price. Capital assets can be products like stocks, bonds, mutual funds, real estate, etc. The term capital gain refers to the higher value realised at the time of sale of the asset. Similarly, a capital loss indicates a reduction in the value of an asset as compared to its original cost.
Capital gains can involve lengthy manual calculations. However, with the availability of Fisdom’s online capital gains calculator, investors can easily calculate this tax liability within a matter of a few seconds. Read on to find out how.
Table of Contents
- 1 – Categories of capital gains
- 2 – About long term capital gains tax
- 3 – About short term capital gains tax
- 4 – What is Fisdom’s capital gains calculator?
- 5 – What are the steps to use Fisdom’s capital gains calculator?
- 6 – How does Fisdom’s capital gains calculator work?
- 7 – Why should you use Fisdom’s capital gains calculator?
- 8 – Conclusion
Categories of capital gains
There are two main categories of capital gains:
- Long-term capital gains (LTCG):
As the name says, long term capital gains are those gains when an asset is held for a long time. But the time period varies between assets. For ex: For equities and equity oriented mutual funds, a holding period of over twelve months
- Short-term capital gains (STCG):
Short term capital are those gains made when the asset is sold after a short holding period. The holding period varies between assets.
About long term capital gains tax
Long-term capital gains tax in India is to be looked at as pre-2018 budget and post-2018 budget. That is because the Union Budget 2018 declared long-term capital gains tax applicability on equity mutual funds, which were not taxable for investors until then. As per this announcement, a flat 10% long-term capital gains tax applies to all equity and equity mutual fund investments.
Definition of LTCG
LTCG or long-term capital gains tax is payable on profits generated from such capital assets that are held for a long term. The total period of holding, either ‘short term’ or ‘long term’, can differ across asset categories. Mentioned below are the periods for which the respective asset’s returns are considered as long-term:
- Stocks: Sold after a holding period of over 1 year – long term
- Equity mutual funds: Sold after a holding period of over 1 year – long term
- Debt mutual funds: Sold after a holding period of over 3 years – long-term
- Gold ETF: Sold after a holding period of over 3 years – long term
Long-term capital gains tax is applicable at 10% on capital gains over Rs. 1 lakh that are generated from stocks or equity-oriented mutual funds held for over one year.
About short term capital gains tax
Returns generated from capital assets that are held for a shorter duration are known as short-term capital gains. Short-term capital gains tax is levied at 15% plus surcharge and cess as applicable. Short-term capital gains other than such that is covered under section 111A of the Income Tax act attracts tax at normal tax as per the taxable income of the individual.
Mentioned below are the periods for which the respective asset’s returns are considered as short-term:
- Stocks: Sold after a holding period of less than 1 year – short term
- Equity mutual funds: Sold after a holding period of less than 1 year – short-term
- Debt mutual funds: Sold after a holding period of less than 3 years – short-term
- Gold ETF: Sold after a holding period of less than 3 years – short-term
What is Fisdom’s capital gains calculator?
Fisdom’s capital gains calculator is a free online tool that helps investors in estimating their capital gains tax liability for the below-mentioned investment options:
- Listed stocks
- Equity-oriented mutual funds
- Debt-oriented mutual funds
- Gold ETFs
The calculator comes with different input categories like the type of asset, selling price, asset sold date, buying price and asset bought date. Once the user inputs all these values, the calculator will show, on the right-hand side, the total asset holding period, type of capital gain, capital gains/losses, effective tax rate, and tax amount.
What are the steps to use Fisdom’s capital gains calculator?
Here are the important steps to be followed for using Fisdom’s capital gains calculator to get accurate tax liability details:
- In the ‘type of asset’ dropdown, select the appropriate asset type. For example, stocks.
- In the buying price and date boxes, enter the relevant purchase price of the asset and the date that the asset was bought.
- Enter the net sale price or sale value of the asset.
- Select the date when you had sold the asset.
- For assets that have been bought before 31 March 2018, no long-term capital gains tax will be applicable on the investment. Assets bought after 01 April 2018 will attract long-term capital gains tax depending on when they were sold.
- Depending on the purchase date and sale date, the calculator will automatically calculate the holding period, which will be displayed on the right side section of the calculator. This will determine whether long-term or short-term capital gains tax will be applicable.
- Fisdom’s capital gains calculator will then show the type of capital gain that is applicable.
- The calculator will estimate the total capital gain or loss and, as per the effective tax rate, it will show the total tax amount or liability that you must pay in the financial
How does Fisdom’s capital gains calculator
The functionality of Fisdom’s capital gains calculator can be easily understood with the help of an example.
Scenario 1: long-term capital gains
Suppose you bought or invested in 100 stocks of Infosys Ltd at Rs. 1,000 per share in June 2018 and sold them at Rs. 1,500 per share in February 2020.
Scenario 2: long-term capital gains
However, if you had bought 500 shares on the same date and at the same price, the LTCG would be = 2,50,000 (500*1500 – 500*1000)
Thus, the tax will be applied on: (Rs. 2,50,000 – Rs 1,00,000) at 10%. LTCG tax will therefore be Rs. 15,000. (Rs 1,50,000@10%).
Scenario 3: short-term capital gains
Suppose you had bought 100 stocks of Infosys Ltd at Rs. 1,000 per share in June 2020 and sold them at Rs. 1,500 per share in December 2020.
Thus, the holding period of the stocks is less than one year. The short-term capital gains will be applied on Rs. 50,000 (100*1500–100*1000), which is the profit made from the sale.
Since these returns are generated from equities and the same falls under Section 111A of the Income-tax Act, the applicable tax rate will be 15%.
Thus, short-term capital gains tax will be = 50,000*15% = 7,500. The net proceeds have to be adjusted for brokerage or other purchase-related expenses.
Why should you use Fisdom’s capital gains calculator?
Fisdom’s capital gains calculator calculates short term or long-term capital gains tax as applicable on returns generated from certain asset categories. Here is how this calculator can benefit investors:
- The calculator provides the result of an otherwise lengthy LTCG tax calculation within a few seconds.
- It offers investors a glance at the actual or net returns to be availed from an investment after deducting taxes.
- With the help of the data provided by this calculator, investors can plan the investment duration for stocks, equity mutual funds, debt funds, and gold ETFs to attain maximum tax efficiency.
- Since investors can use this calculator even before investing, they can plan their investments depending on tax for various holding periods.
While capital gains tax liability can be estimated through manual calculations, it can be time-consuming and prone to errors. With a free-to-use online tool like Fisdom’s capital gains calculator, investors can save considerable time and effort in estimating their annual tax liabilities on returns generated from multiple assets.
As per current tax laws, the short-term capital gains are taxable at 15% on returns from assets held for a maximum tenure of 36 months. The holding period criteria can differ across asset categories.
As per current tax policy, long-term investments offer higher tax efficiency as compared to short-term investments. However, this depends on the asset category and also on an investor’s financial planning.
You can save LTCG tax on returns generated from equity mutual fund investments by offsetting any capital losses incurred from these. A long-term capital loss can be only adjusted against long-term capital gains.
No, there is currently no deduction on LTCG tax except for tax exemption on gains of up to Rs. 1 lakh.
Yes, you can reduce the overall tax liability on LTCG from stock investments by planning the amount and duration of the investment.