Weighted average CGT of 5% applicable from today; Find out how to calculate Weighted average cost

The beginning of new fiscal year marks the beginning of the implementation of new Capital Gain Tax (CGT) rate an calculation method. From Shrawan 01, 2075/76 (i.e. today) the CGT rate will be 5% instead of 7.5%. Similarly, the new CGT will be calculated on weighted average basis, which will incorporate the bonus and right shares too while calculating the total tax payable.

Weighted average calculation method:
Let us assume that an investor bought 100 unit shares in an IPO at Rs 100 per units. So, Initial Investment = Rs 10,000

Now if the investor purchases an additional 50 shares of the same company from the secondary market at Rs 300, then
Additional Investment = Rs 15,000

Then, the weighted average can be determined as total investment divided by total units of shares
=(10,000+15000)/(100+50)
=Rs 166.67 per unit

After a year, the company distributes 10% bonus shares to the shareholder than he will get 15 units (10% of 150), then new weighted average is
=((150*166.67)+(15*100))/(150+15)
=Rs 160.61 per unit

Now if the company declares 1:1 right shares and if the investor buys 165 unit shares as his right then the new weighted average is
=((165*160.61)+(165*100))/(165+165)
=Rs 130.30 per unit

Likewise, if the investor receives 100 unit shares as domestic transfer or property division then there are two ways to identify the weighted average price.

1. If the weighted average investment of the previous owner is known then that will be used.
2. If the weighted average of the previous owner is not known then Rs 100 (par value) will be taken to determine the total value.

Once the weighted average investment/cost per unit is determined it will be subtracted from the price at which you sold and 5% tax will be levied on the gain.

However, for this system to work the CDS and clearing limited needs purchase price information. The dematerialized shares transactions begun from Magh, 2072 so for any shares purchased thereafter, the weighted average can be calculated in the aforementioned manner.

In case of shares purchased before that, the CDSC hasn't stated any fixed base date or year. So the investors will disclose the price at which they had bought and that will be taken to calculate the weighted average.