Long Term Capital Gains computation and tax rates

In simple layman terms capital gains as the name suggests is a type of monetary gain which has been acquired from various types of capital goods. Long term capital gains or LTCG is applied in context with two different types of Capital Assets. One of the capital assets is house and the other is mutual funds/shares. So, simply speaking any monetary gain when acquired due to the sale of either of these capital assets makes it mandatory for the seller to pay Capital gains tax. The capital gains are further divided into short term and long term capital gains.

Selling of assets attract capital gains tax

The profit earned on the assets sold such as the mutual fund units, shares, property, bonds and so on attract capital gains tax. Actually speaking this profit earned is termed as capital gains. And the tax paid on this gained amount is known as capital gains tax. On the other hand, in case you have incurred loss while selling these assets, then you face loss of capital instead of gains and do not need to pay the capital gains tax. If the assets are sold more than 36 months after their date of purchase the profit earned on these assets is termed as long term capital gains. In case of mutual funds and shares the profit earned after 12 months from the date of purchase comes under long term capital gains.

How is long term capital gains taxed?

The tax rates on these types of capital gains fall under:
• 0 percent rate in case your complete income earned through the long term profits finds you a place in the tax brackets of ten to fifteen percent. This also includes the capital gain income.
• 15 percent rate in case your complete income finds you a place in the bracket of 25 percent or higher in which the capital gains income is also included.

Computation of long term capital gains

The computation of long term gains from the capital is carried out by deducting the total consideration value for transfer of an asset. The expenditure is connected entirely with the transfer. The computation process includes asset acquisition indexed cost and the improvement indexed cost of the asset if any. While considering the expenditure in case of the shares, the transfer also includes commission of the stock broker. However, the salaries of the employees are not deducted during the computation of the long term gains although there are chances that the employees might have contributed in share transfers.