Capital Gains Tax: How to save tax on capital gains – Complete guide

How to save tax on capital gains: Individuals don’t have to pay income tax up to Rs 1 lakh, earned on equity oriented mutual funds or sale of equity shares, if they learn this method. This is a legal method of saving income tax on ong term capital gains (LTCG) from the sales of equity shares and equity oriented mutual funds.

Save tax on capital gains: Many investors don’t know about this legal way to save tax while selling equities. Indvidual taxpayers can save income tax on long term capital gains (LTCG) from the sales of equity shares and equity oriented mutual funds, if they hold them for a certain period.

Individuals don’t have to pay income tax up to Rs 1 lakh, earned on equity oriented mutual funds or sale of equity shares, if they sell after holding them for 12 months. However, this exemption is specific to the relevant financial year, and it cannot be carried forward to the next years.

That means, if you hold equity shares for a longer period for a bigger gain, you must pay income tax on gains above Rs 1 lakh, as applicable to that financial year.

According to an ET report, Mitesh Jain, Partner, Economic Laws Practice, a law firm, said that gains more than Rs 1 Lakh on sale of listed equity shares or equity oriented mutual fund held for more than 12 months are subject to long term capital gains (LTCG) tax @10% (plus applicable surcharge and cess).

Here’s how to save tax on capital gains

You can save your income tax the legal way with this method called – tax harvesting. You just need to simply sell your listed equity shares and mutual funds and then buy it back after some days to continue investment planning.

As per an ET report, Neeraj Agarwala, Partner, Nangia Andersen India, said that an investor can sell shares to realise profits within the current year and take advantage of the Rs 1 lakh exemption. Investors can re-buy shares after the beginning of the new fiscal year, which further allows gains of up to Rs 1 lakh, to avoid tax. By doing so, the investor gets a revised cost of acquisition and revised date of acquisition. Tax harvesting reduces investors’ tax obligations over time, while maintaining the risk profile of their investment portfolio, Aggarwal added.

Points to consider while opting for tax harvesting

Tax harvesting also comes with some associated risks. One should keep certain things in mind like –

• cost and date of acquisition can change
• Individuals should be cautious about using this method, as litigations may arise
• Equity markets are volatile, hence, there are always chances for losses

Tax harvesting method might not be entirely successful in case brokerage and other costs are high.