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The investor’s guide to long-term capital gain tax on shares

A roller coaster of ups and downs awaits those who go into the stock market as investors. However, it entails more than only making accurate stock market predictions or timing the market. It also requires investors to focus on other related aspects. 

One such aspect is LTCG. Long-term capital gains tax (LTCG) is an overlooked tax that can have an influence on your refund. If not adequately calculated, this tax is applied to the profit from shares held for a long time and can significantly reduce your returns.

Today’s article illuminates the concept of LTCG, while exploring its definition and offering strategies to minimise its effect on returns, aiding in the preservation of hard-earned money. So, whether a seasoned investor or a beginner, this guide equips readers with the knowledge to confidently navigate the financial seas.

Long-term capital gain tax rate on shares

LTCG tax on equity is a significant concept in the financial industry. It is a tax applied to the profits you make when you sell or transfer certain assets, like stocks, that you have held onto for a specific period, usually more than a year.

But when does this tax kick in? It is when you have held onto shares for over 12 months and decide to sell them. Although, it may not be as simple as it seems. The tax is only applied if your capital gains exceed Rs.1 lakh.

Why is it crucial to grasp LTCG? It is essential for budgeting and other financial purposes. It can alter your whole financial strategy by drastically affecting investment returns. Making educated investing decisions and minimising tax responsibilities are both made easier with this tool. Currently, the LTCG tax rate on the sale of listed equity shares in India stands at 10%.

How long-term capital gain is calculated?

Since there are multiple steps involved, calculating LTCG can be complicated. The initial step is to find-out the total value of consideration or the asset’s selling price. Then, take out the acquisition and the improvement cost, which are the amounts paid to get the asset. 


1Value of considerationSale of 200 shares at ₹1,800 per share = ₹3,60,000
2Cost of acquisitionPurchase of 200 shares at ₹1,000 per share = ₹2,00,000
3Capital gainsValue of consideration – Cost of acquisition = ₹1,60,000
4Taxable capital gainsCapital gain after the exemption limit of ₹1 lakh = ₹60,000 (₹1,60,000 – ₹1,00,000)
5LTCG taxTaxable capital gain = ₹60,000 * 10% (Tax rate) =  ₹6,000

LTCG indexation

When calculating the value of an asset, indexation is a method of accounting for inflation. Real estate, stocks, or bonds are all examples of long-term assets. The objective is to compensate for the gradual erosion of the asset’s buying value due to inflation. Indexation is a method that maps the value of a product, service, or other item to a fixed price or index. One benefit of this is that it helps keep the value of a currency unit relative to the actual price of goods and services relatively constant.

Now, you may be asking, how is indexation factored into the LTCG calculation? Indexation can help you reduce your total tax bill by modifying the acquisition price of the investment or asset that it is based on. Because these gains can be adjusted against the inflation rate of the year of purchase and sale, you can realise higher profits.

Strategies to minimise the impact of LTCG on your returns

While it is impossible to avoid LTCG tax entirely, several strategies can help soften its impact on your returns. One such strategy is recalibrating your equity investment plan. Despite the introduction of the LTCG tax, equities remain an efficient vehicle for achieving high growth with the lowest tax impact over the long term. If your potential long-term returns could be reduced by 10%, consider increasing your SIP investments by 10% to offset this impact.

Another strategy is investing in your adult child. Under Indian tax laws, the earnings of individuals who have turned 18, are not clubbed with their parents’ earnings. So, if your child is already 18 years old, you may avoid LTCG entirely by investing in their name.

Lastly, consider harvesting your gains each year. It involves selling investments that have appreciated significantly and then reinvesting the proceeds. It can help offset the gains with losses and reduce your overall tax liability.


This comprehensive guide explores the intricacies of Long Term Capital Gains (LTCG) tax on shares, a crucial factor that can significantly impact investment returns. It delves into its definition, calculation, and the role of indexation, providing strategies to minimise its impact. Whether a seasoned investor or a beginner, this knowledge empowers one to make informed decisions, optimise tax liabilities, and navigate the financial seas with confidence. Happy investing!


How do you calculate long-term capital gains tax on shares?

When selling shares, the amount of Long Term Capital Gains (LTCG) tax due is calculated by subtracting the acquisition cost from the total consideration. For each fiscal year, capital gains over ₹1 lakh are subject to a 10% tax.

Is long-term capital gain taxed at 20%?

In India, long-term capital gains are subject to a 10% tax once they reach ₹1 lakh per fiscal year from stocks, mutual funds, and shares. Gold, debt mutual funds, and real estate are among the other assets that are indexed and liable to an LTCG tax rate of 20%.

Is tax automatically deducted when selling shares?

No, selling shares does not automatically deduct taxes. Gains from the sale of shares are subject to taxes, including LTCG and STCG, which do not become due until profit is actually realised. It is the obligation of the investor to disclose these gains and pay the appropriate tax.

Is profit in a demat account taxable?

Yes, taxable equity is indeed generated when stocks or other assets held in a demat account are sold. A rate of fifteen percent is applied to short-term capital gains for transactions that are subject to the Securities Transaction Tax. In any particular fiscal year, a 10% tax is imposed on after-tax long-term capital gains exceeding ₹1 lakh.

What is the 30-day rule for shares?

Within 30 days of selling a losing security for a capital loss, investors are prohibited from purchasing the same or a “substantially identical” security. This practice is known as the “wash-sale rule” or the 30-day rule. The goal of this regulation is to deter investors from using tax avoidance strategies based on fictitious losses.

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