Step-by-Step Computation of LTCG Step 1: Determine the Full Value of Consideration (FVC) This is the total amount received from the sale of the asset.Example: If you sell a property for ₹50,00,000, then FVC = ₹50,00,000. Step 2: Determine the Cost of Acquisition (CoA) and Cost of Improvement (if anyRead more
Step-by-Step Computation of LTCG
Step 1: Determine the Full Value of Consideration (FVC)
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This is the total amount received from the sale of the asset.
Example: If you sell a property for ₹50,00,000, then FVC = ₹50,00,000.
Step 2: Determine the Cost of Acquisition (CoA) and Cost of Improvement (if any)
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Cost of Acquisition: The purchase price (plus any incidental expenses) at the time the asset was bought.
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Cost of Improvement: Any capital expenditure on improvement (not repair) made during the holding period.
Step 3: Indexation Benefit
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Since the asset qualifies as long-term, you can adjust the original costs for inflation using the Cost Inflation Index (CII) as per Section 55(2).
Indexed Cost of Acquisition =
(Cost of Acquisition×CII in the year of acquisition)/CII in the year of sale
- Similarly, calculate the Indexed Cost of Improvement if applicable.
- Step 4: Deduct Directly Attributable Expenses
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Include expenses incurred wholly and exclusively in connection with the transfer (for example, brokerage fees, stamp duty on transfer, legal fees).
Step 5: Compute the Long-Term Capital Gain (LTCG)
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LTCG = FVC – (Indexed Cost of Acquisition + Indexed Cost of Improvement + Transfer Expenses)
Step 6: Apply the Tax Rate and Compute Tax Liability
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Tax Rates:
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For most assets (other than equity shares where specific rates apply), LTCG is taxed at 20% on the computed gain (plus applicable surcharge and cess).
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For equity shares or equity-oriented mutual funds (where STT is paid), the LTCG is taxed at 10% on the gains exceeding an exemption threshold (currently ₹1,00,000) under Section 112A.
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1. Three sections deal with this matter: Section 40A(3) – Disallowance of cash expenditure Section 40A(3A) – Treatment of unpaid expenses paid in cash in subsequent years Rule 6DD – Exceptions to the above disallowance 2. What Does Section 40A(3) Say?" Where the assessee incurs any expenditure in reRead more
1. Three sections deal with this matter:
Section 40A(3) – Disallowance of cash expenditure
Section 40A(3A) – Treatment of unpaid expenses paid in cash in subsequent years
Rule 6DD – Exceptions to the above disallowance
2. What Does Section 40A(3) Say?“
Where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque or bank draft or use of electronic clearing system through a bank account, exceeds ₹10,000, no deduction shall be allowed in respect of such expenditure.”
✅ Key Points:
🔁 3. What is Section 40A(3A)?
📌 In simple terms: The deduction is reversed and taxed in the year of cash payment.
🔒 4. Exceptions under Rule 6DD
Certain genuine situations allow cash payments > ₹10,000 without disallowance:
🧾 5. Penalty or Consequence:
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See lessNo penalty directly, but expenditure is disallowed, thereby increasing taxable profit.
Results in higher income tax liability.