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Taxable Income

How Long term Capital gains are computed?

Long term Capital gains are computed by deducting from the full value of consideration for the transfer of a capital asset the following : l Expenditure connected exclusively with the transfer;

- The indexed cost of acquisition of the asset,

- The indexed cost of improvement, if any, of that asset.

In the case of shares, expenditure in connection with the transfer includes the stock brokers commission but the salary of an employee is not deducted in computing capital gains though the employee may have helped in the transfer of the shares.

Cost of acquisition, in such cases includes the price-paid, cost of share transfer stamps, cost of postage for sending the shares for transfer to the transfer-agents of the company, legal expenses etc.

Indexed cost of acquisition means an amount which bears to the cost of acquisition the same proportion as Cost Inflation Index for the year in which the asset is transferred bears to the Cost Inflation Index for the first year in which the asset was held by the assessee.

Source: Income Tax Department

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