This article explains the concept of equity LTCG grandfathering in detail with multiple case studies and examples.

This article is a part of our detailed article series on the concept of mutual fund taxation in India. Ensure you have read the other parts here: Show/Hide

📚 Table of Contents

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• What is so special about equity capital gains calculation?
• Scope of assets under equity taxation
• Calculating short-term capital gains tax on equity-related assets
• Calculating long-term capital gains tax on equity-related assets
  • Calculation formula
  • FMV Calculation
  • CG tax calculation
• Worked out examples
  • Short-term capital gains calculations
  • Long-term capital gains calculations without grandfathering
  • Long-term capital gains calculations with grandfathering
• Calculator for LTCG grandfathering
• What has been the amendment regarding equity capital gains due to Budget 2024?

What is so special about equity capital gains calculation?

Long-term capital gains (LTCG) for equity-type assets (like shares and mutual funds) were made taxable, under Section 112A, in the Budget presentation of 2018. Before that, since 2004, LTCG for equity was zero to attract Foreign Institutional Investors (FII).

To assuage investors’ concerns that a lot of capital gains tax will have to be paid for shares purchased at old low prices, the Finance Ministry exempted any capital gains accumulated before 31-Jan-2018. This is the concept of grandfathering of long-term equity capital gains.

This article should be read in conjunction with this one: How is tax calculated on selling shares/MFs?

Scope of assets under equity taxation

The formula applies to the sale of the following assets called equity-related assets:

• equity shares on which STT is paid
• shares of REITs and InvITs
• equity mutual funds with at least 65% Indian shares
• fund of fund mutual funds with total exposure exceeding 65% Indian shares

Calculating short-term capital gains tax on equity-related assets

Short-term capital gains arise if the asset is sold only after buying it less than a year back.

The formula is simple:

CG = MV - BV

where

• CG = Equity-related capital gains on which tax will be calculated
• MV = Sale value of the position reduced by transfer costs like stamp duty and brokerage
• BV = Purchase value of the position

Tax is calculated as:

Tax = 20% * CG

where CG = total equity-related capital gains as per the PAN of the investor across all selling done between 1st Apr to 31st Mar

Calculating long-term capital gains tax on equity-related assets

Long-term capital gains arise if the asset is sold only after buying it more than a year back.

Calculation formula

If you purchased units on or before 31-Jan-2018 (Grandfathering applies),

CG = MV - max ( BV , min ( FMV , MV ) )

Else, i.e. you purchased the units after 31-Jan-2018 (Grandfathering does not apply)

CG = MV - BV

where

• CG = Equity-related capital gains on which tax will be calculated
• MV = Sale value of the position reduced by transfer costs like stamp duty and brokerage. This number is called Cost of Acquisition in income tax rules
• BV = Purchase value of the position
• FMV = Value of the position on 31-Jan-2018 (see below)

FMV Calculation

Fair Market Value (FMV) is calculated from the following data sources using prices on 31-Jan-2018. If you purchased your units after 31-Jan-2018, FMV calculation is not applicable. You can set CG = MV - BV. To calculate FMV, you will need:

• mutual fund NAVs from AMFI.
• NSE Bhavcopy that has the maximum intraday price for shares sold on the National Stock Exchange
• BSE Bhavcopy that has the maximum intraday price for shares sold on the Bombay Stock Exchange

FMV = MF Units or Shares sold * (NAV on 31Jan2018 or the highest intraday price of the share on 31Jan2018)

You can download the files from here:

• AMFI NAV
• NSE Bhavcopy
• BSE Bhavcopy

CG tax calculation

Tax = 15% * max ( 0, CG - ₹125,000 )

where CG = total equity-related capital gains as per the PAN of the investor across all selling done between 1st Apr to 31st Mar. Of course, you can off set this gain vs. any capital loss as explained here: How to calculate taxes from capital gains and combine them with your other income

Note: Before Budget 2024, the rates were 15% for STCG and 10% (with ₹1 lakh exemption) for LTCG.

Worked out examples

Short-term capital gains calculations

This is a straightforward calculation:

• Purchased 100 units at ₹40 on 02-Jan-2019 for a total of ₹4,000. Sold them for ₹6,000 on 01-Dec-2019 (within one year)
• Capital gains is ₹6,000 - ₹5,000, i.e. ₹1,000
• Tax will be 15% of ₹1,000, i.e. ₹150

Long-term capital gains calculations without grandfathering

This is another straightforward calculation:

• Purchased 100 units at ₹40 on 02-Jan-2019 for a total of ₹4,000. Sold them for ₹6,000 on 01-Dec-2022 (beyond one year)
• Capital gains is ₹6,000 - ₹5,000, i.e. ₹1,000
• Tax will be 10% on any LTCG exceeding ₹100,000

Long-term capital gains calculations with grandfathering

Case 1: Purchase price < 31Jan2018 price < Sale price

Purchased 100 units at ₹40 on 02-Jan-2017 for a total of ₹4,000. Sold them for ₹6,000 on 01-Jan-2020.

• Price on 31-Jan-2018 is 50
• MV calculation: max of the purchase value of ₹4,000 and lower of FMV ₹5,000 of and sale value of ₹6,000
• i.e MV is ₹5,000
• Capital gains is ₹6,000 - ₹5,000, i.e. ₹1,000

Case 2: Purchase price < Sale price < 31Jan2018 price

Purchased 100 units at ₹40 on 02-Jan-2017 for a total of ₹4,000. Sold them for ₹4,500 on 01-Jan-2020.

• Price on 31-Jan-2018 is 50
• MV calculation: max of the purchase value of ₹4,000 and lower of FMV ₹5,000 of and sale value of ₹4,500
• i.e MV is ₹4,500
• Capital gains are ₹4,500 - ₹4,500, i.e. ₹0

Case 3: Purchase price = Sale price < 31Jan2018 price

Purchased 100 units at ₹40 on 02-Jan-2017 for a total of ₹4,000. Sold them for ₹4,000 on 01-Jan-2020.

• Price on 31-Jan-2018 is 50
• MV calculation: max of the purchase value of ₹4,000 and lower of FMV ₹5,000 of and sale value of ₹4,000
• i.e MV is ₹4,000
• Capital gains are ₹4,000 - ₹4,000, i.e. ₹0

Case 4: Sale price < Purchase price < 31Jan2018 price

Purchased 100 units at ₹40 on 02-Jan-2017 for a total of ₹4,000. Sold them for ₹3,500 on 01-Jan-2020.

• Price on 31-Jan-2018 is 50
• MV calculation: max of the purchase value of ₹4,000 and lower of FMV ₹5,000 of and sale value of ₹3,500
• i.e MV is ₹4,000
• Capital loss is ₹3,500 - ₹4,000, i.e. ₹-500

Case 5: Sale price < 31Jan2018 price < Purchase price

Purchased 100 units at ₹60 on 02-Jan-2017 for a total of ₹6,000. Sold them for ₹3,500 on 01-Jan-2020.

• Price on 31-Jan-2018 is 50
• MV calculation: max of the purchase value of ₹6,000 and lower of FMV ₹5,000 of and sale value of ₹3,500
• i.e MV is ₹6,000
• Capital loss is ₹3,500 - ₹6,000, i.e. ₹-2,500

Case 6: 31Jan2018 price < Purchase price < Sale price

Purchased 100 units at ₹60 on 02-Jan-2017 for a total of ₹6,000. Sold them for ₹7,000 on 01-Jan-2020

• Price on 31-Jan-2018 is 50
• MV calculation: max of the purchase value of ₹6,000 and lower of FMV ₹5,000 of and sale value of ₹7,000
• i.e MV is ₹6,000
• Capital gains is ₹7,000 - ₹6,000, i.e. ₹1,000

Case 7: 31Jan2018 price < Sale price < Purchase price

Purchased 100 units at ₹70 on 02-Jan-2017 for a total of ₹7,000. Sold them for ₹6,000 on 01-Jan-2020.

• Price on 31-Jan-2018 is 50
• MV calculation: max of the purchase value of ₹7,000 and lower of FMV ₹5,000 of and sale value of ₹6,000
• i.e MV is ₹7,000
• Capital loss is ₹6,000 - ₹7,000, i.e. ₹-1,000

Calculator for LTCG grandfathering

Our goal-based investing calculator contains a dedicated sheet to calculate equity grandfathering, including the NAVs from AMFI and the stock prices from NSE/BSE for 31st January 2018.

Click the image below to get the calculator

Please refer to the “eq-ltcg” tab in the sheet.

What has been the amendment regarding equity capital gains due to Budget 2024?

Budget 2024, released on 23rd July 2024, made some changes to equity taxation. For LTCG (sale after 1-year of ownership)

• grandfathering for shares / equity-oriented mutual funds purchased before 31st Jan 2018 remains as-is i.e. tax-free as per this article’s text
• for sales on or after 23rd July 2024, the taxation rate is now 12.5% with the exemption limit increased to ₹1.25 lakhs
• for sales between 1st April 2024 to 22nd July 2024, any capital gains from 1st February 2018 to sale date will be taxed at 10% with ₹1 lakh exemption as per this article

For STCG (sale before one year of ownership), the rules are:

• for sales between 1st April 2024 to 22nd July 2024, any capital gains will be taxed at 15%
• for sales on or after 23rd July 2024, any capital gains will be taxed at 20%