Explained In Detail: Calculation Of LTCG Tax While Selling Shares

The equity market is a focal point where innumerous companies list their shares amongst the bidders and thereby trade in exchange for receivables. The market runs through many transactions between the prospective groups of buyers and sellers. The potent return on investment from equity shares will decide the proportion of gains and losses incurred by you as an investor. These capital gains will interestingly be more than your personal investment and thereby will be subjected to tax on LTCG on shares.

Long-term Capital Gains implies the profit that is earned by the person on selling his investment holdings to purchase assets like:

  • Stocks
  • Goods
  • Real Estate
  • Corporate Bonds

To put it simply, LTCG is a profit incurred on capital investment.

While selling your shares, there are many ways suggested on the internet to calculate the total LTCG tax applied on every sale. This article brings you the easiest ways to calculate the add-on tax on LTCG on shares. Before arriving at the calculation part, you need to first have a clear glimpse of how the exchanges in the equity market work.

Decoding Equity Market Exchanges

If you try to decipher the equity market situation more meticulously then you must first understand how companies bid or list their brands in the market.

  • Firstly, the securities of the companies are listed on the market in order to get tapped by prospective investors. Then through an “Initial Public Offering (IPO)” the bidders bid for the company’s shares. This is further passed on to the residuary to be traded in the secondary equity market.
  • Thereby the trading is initiated on public or private exchanges in which you as an investor bid for the share and acquire it after the issuance conferred by the dealer.

Methods of calculating the tax on LTCG on shares

To calculate the tax on long-term capital gains on shares, you need to consider the following:

  1. The cost price of the asset purchased.
  2. Expenses induced or brokerages on selling the shares.

The formula to calculate tax on LTCG on shares is:

Tax on Long-term capital gains = Sale consideration – Cost of acquisition

To understand the calculation more deeply, it is important to learn about some terms associated with the tax applied on long-term capital gains. The elements involved are:

1.   Sales value

It is the amount received against the sale of an asset. To calculate the capital gains, you need to deduct the Securities Transaction Tax and additional brokerage charges from it.

2.   The price of purchase (acquisition of assets)

As the sub-head suggests, it is the price that you have to pay to purchase an asset. As of 31 March of every month, you need to multiply the total number of shares bought with their comparative higher rates to derive the net cost.

3.   Expenditure incurred on sale

These expenses comprise additional brokerage charges or registry against the sale of assets. In this case, the Securities Transaction Tax is not excluded.

4.   Indexation

Indexation is a method to tailor the income or capital payments as per the fixed price index. This will help you to upkeep a robust purchasing power despite the rising levels of inflation. Through indexation, you can beat the inflation rates on assets in the market and calculate the actual long-term gains on shares, with no add-ons.

5.   Holding Period

Holding period return or yield is the net return that you earn on every investment at the time you hold the asset. A holding period refers to the actual investment time of an investor. Precisely, it is the time gap between the acquisition and sales of an asset.


The tax applied on long-term gains on shares is to make sure that there is less possibility of a shortage in the collection of the goods and service tax. In hindsight, regardless of the profits and losses that you incur in a financial year, the imposition of tax is mandated by the Government of India. Therefore, it is suggested to know the means of calculating the LTCG tax while you exchange your shareholdings. To gain more insight on what is tax on ltcg on shares, give this blog a read.