Pay lower capital gains taxes for equity: understand how grandfathering works
27 Jul 2022 - Contact Sayan Sircar
7 mins read
This article explains the concept of equity LTCG grandfathering in detail with multiple case studies and examples.

Table of Contents
- 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
- Worked out examples
- Calculator for LTCG grandfathering
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?
Recent articles: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 = 15% * 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
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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
Fari 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:
CG tax calculation
Tax = 10% * max ( 0, CG - ₹100,000 )
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
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 for calculation of equity grandfathering including the NAVs from AMFI as well as the stock prices from NSE/BSE for 31-Jan-2018.
Click the image below to get the calculator
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This post titled Pay lower capital gains taxes for equity: understand how grandfathering works first appeared on 27 Jul 2022 at https://arthgyaan.com
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