Save LTCG Tax on Stocks

GAINS ABOVE ₹1 LAKH ON SHARES ARE TAXED. HERE IS HOW YOU CAN CHURN THE PORTFOLIO TO PAY LESS

- NAVEEN KUMAR

A penny saved is a penny earned. This old adage will sound truer than ever to Indian investors who have had to work extra hard to earn even half-decent returns from equities over the past one year. Since every penny matters, one way for stock investors to earn a little extra is saving the 10 per cent tax on equity gains above ₹1 lakh a year (if the shares are held for one year or more) that was imposed in the 2018 Union Budget. Till 2018, long-term capital gains (LTCG) on shares sold after a year were exempted from tax, but there was a short-term capital gains tax of 15 per cent (on equity investments held for less than a year).

Effective April 1, 2018, if you sell shares after holding them for a year or more, you are liable to pay LTCG tax if your profits are more than ₹1 lakh. “Section 112A levies tax at a flat rate of 10 per cent on long-term gains from sale of shares listed on stock exchanges. However, tax under this section shall be levied only on gains that exceed ₹1 lakh,” says Naveen Wadhwa, DGM, Taxmann. No indexation benefit is available on transfer of shares. Indexation adjusts the purchase price for inflation and lowers the gains and, hence, the tax liability.

Here are some ways to reduce this outgo.

Hold for Very Long

There are many people who had huge capital gains before the decision to levy LTCG tax was taken. They have been given respite to a great extent. “When any new clause or provision is added, certain persons usually enjoy some relief from complying with the provisions or clauses, which is known as grandfathering. ‘Grandfathered’ persons enjoy such relief owing to the fact that they made the decisions under the old clause/ provisions. In this case, investments made on or before January 31, 2018, are eligible for grandfathering,” says Gaurav Mohan, CEO, AMRG & Associates.