Rs.1 lakh exemption
An exemption of up to Rs.1 lakh is available each financial year for LTCG tax on sale of shares or mutual fund units. Investors can time the exit from their investments by spreading the redemption over two financial years to avail of the tax exemption limit for both years.Tax-friendly securities
Invest in tax-efficient instruments like equity-oriented hybrid funds, equity-linked saving schemes, or tax-saving fixed deposits. ELSS has a three-year lock-in period and is eligible for LTCG tax.
Set off capital losses
Investors can set off their long-term and short-term capital loss against long-term capital gains. This minimises the tax liability and only the difference is subject to the LTCG tax.
Indexation benefit
While computing the LTCG, you can benefit from indexation by adjusting the purchase price for inflation. This reduces the taxable capital gain, leading to a lower tax liability.Grandfathering clause
The grandfathering clause allows investors to consider the market value of their holdings as of 31 January 2018, as the cost of acquisition. This helps in calculating LTCG on gains made after this date, potentially lowering the tax burden.
Content on this page is courtesy Centre for Investment Education and Learning (CIEL).
Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
