Calculating Long-Term Capital Gains (LTCG) involves several steps. Below is a detailed guide that you can use to understand and perform the calculation manually or cross-check the results from a calculator.

1. Understand the Key Components

• Purchase Price: The original cost of acquiring the asset.
• Sale Price: The amount received when selling the asset.
• Holding Period: The duration between the purchase date and the sale date. For LTCG, this period must typically be more than 36 months (for property and other assets) or 12 months (for equity).
• Cost of Improvement: Any additional costs incurred to improve the asset during the holding period.
• Exemptions: Specific deductions or exemptions that may apply, such as under Section 54 of the Income Tax Act.
• Indexation: A method to adjust the purchase price for inflation using the Cost Inflation Index (CII).

2. Determine the Purchase Price and Sale Price

• Purchase Price: Record the actual cost you paid for the asset.
• Sale Price: Record the amount you received from selling the asset.

3. Calculate the Holding Period

• Calculate the time between the purchase date and the sale date. If this period exceeds the threshold (typically 36 months for property), the gains are considered long-term.

4. Apply Indexation (If Applicable)

• Indexation Factor: The indexation factor is calculated using the Cost Inflation Index (CII) provided by the tax authorities.
  • Formula: Indexation Factor=CII of Sale YearCII of Purchase Year\text{Indexation Factor} = \frac{\text{CII of Sale Year}}{\text{CII of Purchase Year}}Indexation Factor=CII of Purchase YearCII of Sale Year​
• Indexed Purchase Price:
  • Formula: $$\text{Indexed Purchase Price}=\text{Purchase Price}\times \text{Indexation Factor}$$
• Indexation adjusts the purchase price to account for inflation, reducing the taxable gains.

5. Calculate the Adjusted Purchase Price

• With Indexation: If indexation applies, use the Indexed Purchase Price.
• Without Indexation: Use the original Purchase Price.

6. Account for the Cost of Improvement

• Add any costs incurred for improvements to the Adjusted Purchase Price.
• Formula: $$\text{Adjusted Purchase Price}=\text{Indexed Purchase Price (or Purchase Price)}+\text{Cost of Improvement}$$

7. Subtract Any Exemptions

• Deduct any applicable exemptions from the gains.
• Formula: $$\text{Taxable Gains}=\text{Sale Price}-(\text{Adjusted Purchase Price}+\text{Exemptions})$$

8. Calculate the Long-Term Capital Gain (LTCG)

• Formula: $$\text{LTCG}=\text{Sale Price}-(\text{Adjusted Purchase Price}+\text{Exemptions})$$
• If the result is positive, it represents the LTCG. If it is negative, it means there’s no taxable gain.

9. Understand the Tax Implications

• LTCG is typically taxed at a rate specified by the tax laws (e.g., 20% with indexation for property).
• Calculate the tax payable using the applicable rate.

10. Cross-Check the Calculation

• Ensure that all components have been correctly considered and the calculations are accurate.
• Review the holding period, indexation application, and exemptions to ensure they meet the legal requirements.

11. Highlight the Result

• Clearly present the final LTCG figure, and if using a calculator, highlight the result so that the user can easily identify it.

Example Calculation

Assume you purchased a property in 2010 for ₹50,00,000, sold it in 2024 for ₹1,00,00,000, and spent ₹10,00,000 on improvements in 2015.

1. Purchase Price: ₹50,00,000
2. Sale Price: ₹1,00,00,000
3. Holding Period: 14 years
4. Indexation Factor: Assuming CII for 2010 is 100 and for 2024 is 200:
   • Indexation Factor = 200/100 = 2
   • Indexed Purchase Price = ₹50,00,000 * 2 = ₹1,00,00,000
5. Adjusted Purchase Price: ₹1,00,00,000 (Indexed) + ₹10,00,000 (Improvement) = ₹1,10,00,000
6. Exemptions: Assume ₹0 for this example.
7. LTCG Calculation:
   • LTCG = ₹1,00,00,000 (Sale Price) – ₹1,10,00,000 (Adjusted Purchase Price) = ₹-10,00,000 (No taxable gain)

In this example, there is no taxable LTCG since the adjusted purchase price is higher than the sale price.