Tax Planning

Lengthy-Time period Capital Features I How you can Scale back Lengthy-Time period Capital Features Burden for Tax Planning

How can the long term capital gains burden for tax planning be reduced? Photo credit: IANS

2020-21 has been a great year for those who invested in the stock market and now the fiscal year is coming to an end. Benchmark Nifty is up over 30% in the past year. Anyone who has booked profits must think about a long-term capital gains tax.

Market gains from investments such as mutual funds and stocks, etc. over a period of more than a year are referred to as long-term capital gains (LTGC). If the investment horizon is less than 12 months or 1 year, gains are referred to as short term capital gains (STCG).

In particular, LTCG can be adjusted against long term capital losses and STCG can also be adjusted against short term capital losses. Investors must assess the tax expense after adjusting their gains versus losses for the specified period. This gives investors the opportunity to get out of losing stocks and use tactical loss posting to offset long-term or short-term gains.

If these net profits are above the Rs 1 lakh exemption limit during the period, they will be taxed at 10%, while in the case of STCG, profits above Rs 1 lakh will be taxed at 15%.

An investor must evaluate the total returns that have been made on such investments over the course of the year. Unadjusted losses from previous years can be carried forward for up to 8 years. Therefore, reported losses in previous years that were not reported can be adjusted against STCG or LTCG for a period of 8 years.

One effective way is to reinvest the profits made by selling stocks via the Rs 1 lakh limit exemption. The value at which the reinvestment is made becomes the new cost of acquiring funds. This is known as the tax harvest. To save on LTGC taxes, the process can be repeated every year. This saves taxes of up to Rs 10,000 per year. This exemption applies to all long-term capital from equity-based mutual funds and stocks.

In particular, there is a grandfathering clause for investments, according to which LTCG are tax-free until January 31, 2018. So if someone invested before that date, the higher of the two values, the amount invested or the value of the investments as of January 31, 2018, will be higher.

To understand this, let’s assume that an investor buys 10,000 shares at 50 rupees each in March 2018. Then the higher

Related Articles