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How to Save Capital Gains Tax: People do not have to pay tax on income up to Rs 1 lakh, earned from equity oriented mutual funds or from sale of shares, if they learn this method. This is a legal method to save income tax on long-term capital gains (LTCG) from the sale of equity-oriented stocks and mutual funds.
Save Capital Gains Taxes With This Method
Save Capital Gains Taxes: Many investors are not aware of this legal way to save taxes when selling stocks. Individual taxpayers can save income tax on long-term capital gains (LTCG) from the sale of stocks and equity-oriented mutual funds, if they hold them for a certain period.
People do not have to pay tax on income up to Rs 1 lakh, earned from equity-oriented mutual funds or from the sale of shares, if they sell them after holding them for 12 months. However, this exemption is specific to the relevant financial year and cannot be carried forward to subsequent years.
That means if you hold shares for a longer period to earn a higher profit, you have to pay income tax on profits above Rs 1 lakh, as applicable for that financial year.
According to an ET report, Mitesh Jain, partner at Economic Laws Practice, a law firm, said that profits of more than Rs 1 lakh on sale of listed shares or equity-oriented mutual funds held for more than 12 months are subject to long-term capital. income tax (LTCG) at 10% (plus the applicable surcharge and cession).
Here’s how to save capital gains taxes
You can save your income tax legally with this method called tax harvesting. You just need to sell your stocks and listed mutual funds and then buy them back after a few days to continue your investment planning.
According to an ET report, Neeraj Agarwala, partner at Nangia Andersen India, said that an investor can sell shares for profit during the current year and avail the exemption of Rs 1 lakh. Investors can buy back shares after the start of the new financial year, further allowing gains of up to Rs 1 lakh, to avoid taxes. By doing so, the investor obtains a revised acquisition cost and a revised acquisition date. Tax collection reduces investors’ tax liabilities over time, while maintaining the risk profile of their investment portfolio, Aggarwal added.
Points to consider when opting for tax collection
Tax collection also has some risks associated with it. You have to take into account certain things such as:
- The cost and date of acquisition may change.
- People should be careful when using this method as litigation may arise.
- Stock markets are volatile, so there is always a chance of losses.
The tax collection method may not be entirely successful in case the intermediation costs and other costs are high.