How to compute LTCG with grandfathering on Zerodha
When the Finance Act 2018 reintroduced long-term capital gains tax on listed equity and equity-oriented mutual funds under section 112A, it included a grandfathering rule to protect gains accrued before the provision came into force. Under this rule, the cost of acquisition for equity held on 31 January 2018 is deemed to be the Fair Market Value (FMV) on that date if the actual cost is lower, but only to the extent of the sale consideration. This ensures that gains accrued up to 31 January 2018 are not taxed under section 112A.
Finance Act 2024 retained the grandfathering rule but changed the LTCG rate from 10% to 12.5% and raised the annual exemption threshold from Rs 1 lakh to Rs 1.25 lakh, effective 23 July 2024. For FY 2024-25 returns (AY 2025-26), this guide applies in full.
Legal basis: section 55(2)(ac)
Section 55(2)(ac) of the Income Tax Act states that for the purpose of computing LTCG under section 112A, the cost of acquisition of a listed equity share or equity-oriented mutual fund unit acquired before 1 February 2018 is the higher of:
- The actual cost of acquisition.
- The lower of: a. The Fair Market Value on 31 January 2018. b. The full value of consideration received on sale.
In simple terms: effective CoA = min(sale price, max(actual CoA, FMV on 31.01.2018)).
This is called the grandfathering formula and ensures that gains crystallised before 1 February 2018 are not taxed.
Prerequisites
- The capital gains CSV from Zerodha Console for the relevant financial year (see How to download the capital gains statement on Zerodha).
- Access to NSE or BSE historical price data archives to obtain FMV on 31 January 2018.
- The ITR-2 or ITR-3 offline utility from incometax.gov.in.
Step-by-step procedure
Step 1: Identify pre-2018 holdings in the capital gains CSV
Download the capital gains CSV from Zerodha Console → Reports → Tax P&L → Download Capital Gains Report. Open the CSV in a spreadsheet application.
Filter the rows where the buy date is on or before 31 January 2018. These are the scrips to which the grandfathering rule applies. The sell date can be any date, because the rule applies based on the acquisition date alone.
Step 2: Obtain FMV on 31 January 2018
The FMV for each ISIN is defined under the rules as the highest price of the share quoted on a recognised stock exchange on 31 January 2018. If the share was not traded on 31 January 2018 (it was a Sunday in 2018, in fact, 31 January 2018 was a Wednesday; it was a regular trading day), use the last trading day before that date on which the share was traded.
Sources for FMV data:
- NSE Historical Data: nseindia.com → Market Data → Historical Data → Equity → End of Day Reports. Download the bhavcopy (end-of-day price file) for 31 January 2018. The high price in the bhavcopy is the FMV.
- BSE Historical Data: bseindia.com → Download → Bhavcopy. Use the BSE bhavcopy for 31 January 2018.
- The Income Tax portal’s pre-filled Schedule 112A: The online ITR utility may pre-fill the FMV for common ISINs. Verify against exchange data.
- Zerodha Kite Holdings page: Zerodha historically displayed the 31 January 2018 FMV in the holdings view for grandfathering purposes. Check if this field is still available under Kite → Holdings → LTCG details.
Use the NSE or BSE bhavcopy as the primary source for accuracy.
Step 3: Apply the grandfathering formula
For each pre-2018 scrip sold in the financial year, compute the effective cost of acquisition:
Formula:
Effective CoA = min(Sale Consideration, max(Actual CoA, FMV on 31.01.2018))
Worked example:
| Parameter | Scenario A | Scenario B | Scenario C |
|---|---|---|---|
| Actual CoA | Rs 50 | Rs 50 | Rs 120 |
| FMV on 31.01.2018 | Rs 100 | Rs 100 | Rs 100 |
| Sale consideration | Rs 150 | Rs 80 | Rs 150 |
| max(Actual CoA, FMV) | Rs 100 | Rs 100 | Rs 120 |
| Effective CoA = min(Sale, max above) | Rs 100 | Rs 80 | Rs 120 |
| Taxable LTCG | Rs 50 | Nil | Rs 30 |
- Scenario A (classic case): actual cost Rs 50, FMV Rs 100, sale Rs 150. Gains up to Rs 100 (the FMV) are grandfathered. Only gains from Rs 100 to Rs 150 (Rs 50) are taxed.
- Scenario B (sale below FMV): actual cost Rs 50, FMV Rs 100, sale Rs 80. The effective CoA is capped at the sale price (Rs 80). The gain is nil (and technically a loss is Rs 0, not Rs 20; there is no deductible loss in this scenario because the FMV rule prevents a loss being computed against the grandfathered FMV).
- Scenario C (actual cost higher than FMV): actual cost Rs 120, FMV Rs 100. The actual CoA of Rs 120 is higher, so the effective CoA is Rs 120. The grandfathering clause does not apply because the actual cost already exceeds the FMV.
Step 4: Compute taxable LTCG for each scrip
For each scrip:
Taxable LTCG = Sale Consideration - Effective CoA - Transfer Expenses
Transfer expenses include brokerage, STT on delivery sell, and exchange charges paid on the sell leg. Zerodha’s capital gains CSV typically includes these in the sell value, or you can identify them from the contract notes. Check whether the CSV uses gross sell value or net (after charges); adjust accordingly.
Step 5: Enter data in Schedule 112A
In the ITR-2 or ITR-3 offline utility, navigate to Schedule 112A. For each LTCG scrip sold during the year (both pre-2018 and post-2018 acquisitions go in Schedule 112A if the holding period exceeds 12 months):
| Field | What to enter |
|---|---|
| ISIN | From Zerodha CSV |
| Name of share or unit | Full name (BSE/NSE) or symbol from CSV |
| Date of acquisition | Actual purchase date from Zerodha CSV |
| Date of sale | Date of sale from Zerodha CSV |
| Cost of acquisition | Actual cost (before grandfathering) |
| FMV as on 31.01.2018 | From NSE/BSE bhavcopy, leave blank if acquired after 31.01.2018 |
| Full value of consideration (Sale price) | Sale consideration from Zerodha CSV |
| Expenditure incurred wholly in connection with such transfer | Transfer charges (brokerage + STT on sell) |
The utility applies the grandfathering formula automatically once you enter the FMV field.
For scrips acquired after 31 January 2018, leave the FMV field blank. The utility then uses the actual cost directly.
Step 6: Handle mutual fund units
The grandfathering rule also applies to equity-oriented mutual fund units acquired before 1 February 2018. The FMV for mutual fund units is the NAV of the scheme on 31 January 2018. Obtain the NAV from the AMFI website → NAV History for the relevant scheme and date.
Note that most mutual fund companies and RTAs (CAMS, KFintech) issue consolidated account statements that show the grandfathered cost. If you have redeemed mutual fund units through Zerodha Coin, the capital gains statement may already reflect the grandfathered cost.
Step 7: Aggregate and apply the Rs 1.25 lakh exemption
After entering all Schedule 112A rows, the ITR utility aggregates the net LTCG (sum of gains minus sum of losses at the scrip level). It then automatically deducts the Rs 1.25 lakh exemption. The taxable LTCG is the excess above Rs 1.25 lakh, taxed at 12.5%.
If the net LTCG is below Rs 1.25 lakh, tax under section 112A is nil.
The split-rate issue for FY 2024-25
Finance Act 2024 changed the LTCG rate from 10% to 12.5% and raised the threshold from Rs 1 lakh to Rs 1.25 lakh, effective 23 July 2024. For FY 2024-25, LTCG on sales made before 23 July 2024 is taxed at 10% (with Rs 1 lakh threshold) and LTCG on sales made on or after 23 July 2024 is taxed at 12.5% (with Rs 1.25 lakh threshold). The ITR utility for AY 2025-26 includes separate sub-fields for the two periods. The grandfathering formula applies equally to both periods; only the tax rate and threshold differ. Refer to How to file ITR-2 with Zerodha capital gains for the ITR-2 procedure covering the rate split.
What can go wrong
Using the closing price instead of the highest price: The FMV is the highest price quoted on 31 January 2018, not the closing price. These are different. Always use the bhavcopy’s high column.
Applying grandfathering to post-2018 acquisitions: The rule only applies if the equity was held on 31 January 2018 (i.e., acquired on or before that date). Shares purchased on 1 February 2018 or later do not attract grandfathering.
FMV higher than sale price creating a phantom loss: As shown in Scenario B above, when the FMV exceeds the sale price, the grandfathering rule results in neither a gain nor a deductible loss. The effective CoA is capped at the sale price, producing a zero gain/loss. Do not claim a loss in this scenario.
Incorrect ISIN in Schedule 112A: A wrong ISIN causes the entry to fail validation or get flagged in AIS matching. Use the correct ISIN from the Zerodha capital gains CSV or from the depository statement.
Related guides
- How to download the capital gains statement on Zerodha
- How to file ITR-2 with Zerodha capital gains
- How to do tax-loss harvesting on Zerodha
- How to use the Quicko integration on Console
- Capital gains tax in India
- Section 112A, LTCG on equity
- Grandfathering rule for LTCG
References
- Income Tax Act 1961, section 112A, long-term capital gains on listed equity.
- Income Tax Act 1961, section 55(2)(ac), deemed cost of acquisition (grandfathering rule) for equity held before 1 February 2018.
- Finance Act 2018, reintroduction of LTCG tax on listed equity; insertion of section 112A.
- Finance Act 2024, LTCG rate revised to 12.5%, threshold raised to Rs 1.25 lakh; effective 23 July 2024.
- CBDT Notification No. 62/2018 dated 28 December 2018, guidelines on Schedule 112A and FMV computation.
- NSE/BSE End-of-Day Bhavcopy for 31 January 2018, source for FMV data.
- Zerodha ITR capital gains statement documentation, zerodha.com/z-connect.