Capital Gain On Shares

 

Introduction

In this article, the information is about capital gains on shares, providing you with valuable insights and strategies to maximize your profits. Whether you are a seasoned investor or just starting, understanding the nuances of Capital Gain on Shares is essential for achieving financial success.

Understanding Capital Gains On Shares

What Are Capital Gains?

Capital gains refer to the profits earned from the sale of a capital asset, such as shares of stock, bonds, or real estate. When the selling price of an asset exceeds its purchase price, the resulting profit is considered a capital gain. Conversely, if the selling price is lower than the purchase price, it results in a capital loss.

Types Of Capital Gains

There are two primary types of capital gains: short-term capital gains and long-term capital gains. Short-term capital gains are generated from the sale of assets held for one year or less, while long-term capital gains are derived from the sale of assets held for more than one year. The tax implications and rates differ for each type of gain, making it crucial to understand the distinction.

The Role Of The Stock Market

The stock market serves as a platform for buying and selling shares of publicly traded companies. Investors participate in the stock market to generate returns, primarily through capital gains and dividends. While dividends represent a portion of a company’s profits distributed to shareholders, capital gains arise from the increased value of stocks.

Calculation of LTCG on Shares

LTCG = Sale value of long-term equity assets – (the cost of acquisition of asset + expenses incurred due to their transfer or sale).

Computation of Long term capital gains:

Sales consideration of asset-Expenditure incurred wholly and exclusively in connection with
transfer of capital assets (E.g., brokerage, commission, advertisement expenses, etc.)- Indexed cost of acquisition -Indexed cost of improvement

Calculation of STCG on Shares

STCG = Sale value of short-term equity assets – (cost of asset acquisition + expenses incurred from the transfer or sale of the assets).

Computation of short-term capital gains:

The full value of the consideration (i.e., Sales value of the asset) – Expenditure incurred wholly and exclusively in connection with the transfer of capital asset (E.g., brokerage, commission, etc.) –  Cost of acquisition (i.e., the purchase price of the capital asset)- Cost of improvement.