100 FAQ's on Basic Finance

# How to calculate gains on sale of equity funds?

In this module, you will learn how to compute the gains from selling stocks. But moving forward, let’s remember the simple process of calculating the profits of the business which we have studied in class V.

Profit = Selling price – Cost Price

Right?

In the equity market, the approach is the same, but the profit is commonly referred to as capital gains. So, first understand the meaning of capital gains.

## What is Capital Gain?

A capital gain is an increase in the value of an asset compared to its purchase price. In simple terms, a capital gain occurs when a share is sold at a higher price and profits are earned.

Generally, it is divided into two categories depending on the time for which the shares are held by investors.

## Types of Capital Gain

• Long-term Capital Gain (LTCG): Equity long term capital gain refers to the profit earned on the sale of shares held for more than one year. However, this 12 month period is valid for only listed equity shares. For unlisted shares, if the investors extend the holding period for the sale of long-term equity shares to 24 months or more, it will be considered a long-term capital gain.

• Short-term Capital Gain (STCG):  It refers to the profit earned on the sale of shares held for less than one year. This is valid for listed shares and in case Unlisted Equity Shares are transferred within a period of 24 months from the date of its acquisition.

## Computation of Capital Gain on Equity Shares

For calculating gains on the sale of equity funds, the following formula is applicable:

Capital Gains = Asset Value (at the time of sale) - Cost of Sale (STT, brokerage, etc.) - Cost of Acquisition of the fund

Here’s the image below which shows how to calculate the net profit. Let’s break down this in a simple manner.

Let's assume that intraday equity is Short-term Capital Gain (STCG), and delivery equity is Long-term Capital Gain (LTCG).

The methods for calculating the short term & long term capital gain on equity are the same. However, the tax implications of these gains are different.

Did you like this unit?

Units 71/101