How to
0 or Minimize Tax on LTCG
Earlier
Tax on LTCG on sale of Equity (Share) or equity related MF (a MF which invests
65% or more in Equity) was 10% and Tax on LTCG on sale of Property like Flat,
House , Gold , Land , Plant & Machinery etc was 20%
However
in Recent Budget on the name of simplification of Tax govt introduced uniform
Tax of 12.5% and scrapping the
Indexation benefit (We will learn what
is Indexation later) , There was lots of
uproar on scrapping of Indexation so
Govt continued Indexation Benefit but
with some condition.
Before we
know how to save Tax on LTCG we should know what is LTCG at all
Long Term
Capital Gain or LTCG is gain that you receive on sale of your shares , or other
fixed assets for example let us imagine
that you have purchased a Flat or land or house) in 2000 at a price of 20 Lakh and now want to
sale it for 1 crore so you have a profit of Rs. 80 lakh that is LTCG
Suppose
you have purchased reliance Industries Shares in Jan 2023 @ Rs 1400 each and
Now you want to sale it for Rs. 2000 each so you have a profit of Rs 600 per
share that is LTCG
Suppose
you have Invested Rs. 1 Lakh in SBI MF
Small Cap Fund or any equity Fund of any Fund House ) in the year 2000 and now
its value is Rs. 2 Lakh so on sale your profit will be 1 Lakh , That is LTCG
Now
let us discuss on Taxability of LTCG
Till last
year LTCG on sale of Equity or Equity
Mutual Fund was exempt from tax limit to the extent of Rs. 1 Lakh and beyond
this it was Taxable @10% for example if
your profit was 1 Lakh on above transactions , no Tax was Payable and if your profit was say Rs. 120000 then
Tax on Rs. 20000 (120000-100000) was
payable @10% = Rs. 2000
Similarly
LTCG os sale of Fixed Asset like Flat, house, Land was Taxed @20% with Indexation
Benefit.
What is Indexation : Indexation is Value of Money today invested in earlier years. In above
example Flat purchased in year 2000 @ Rs. 20 Lakh , Value of 20 lakh of the year
2000 is same as Rs. 6960000 in FY 23-24 , so LTCG will be Rs. 10000000-6960000=Rs.
3040000 and Tax payable will be 20% of it Rs. 608000 +cess
How
Indexation Value was Calculated
As per
Chart of Indexation in FY 23-24 the value of 100 (base) is 348
So
Indexation Value =348/100*(cost price )Rs 20 Lakh =3.48*20 Lakh=Rs. 6960000
Note
: if you have incurred substantial
amount in renovation of your flat you can also add Indexation Value of Renovation cost for the year in which
renovation was done . also you can add brokerage and othe expenses incurred in
sale of flat all these will reduce your LTCG
From FY 24-25 govt has increased
Tax free LTCG limit to Rs. 1.20 Lakh
and Tax on LTCG @12.50% without
Indexation or 20% with Indexation on property
How to Minimize or not to pay Tax
on LTCG
The Income Tax Act provides opportunities to
minimize capital gains tax liabilities through Sections 54, 54F, and 54EC.
Under these provisions, taxpayers can mitigate their tax burden by reinvesting
their capital gains in specific avenues.
You can
do it in 4 simple options :
1. For LTCG
on sale of Equity and Equity related MF try to sale the Equity / MF to the
extent that LTCG is below 1.20 Lakh
2. If you
want to sale higher amount of Equity /MF check if you have losses in any Equity
/MF and sale that also in such a way that gain will offset Losses by careful planning
3. Do
follow Tax Harvesting Concept , in this concept you should sale Equity / MF to
the extent that LTCG is not more than 1.20 Lakh EVEN IF you do not need money ,
reinvest that money in purchase of another Equity or MF , do this every year ,
in this way you Investment will also increase and even if Market fall you have
already booked profit
Understand
this Concept with an example
You have
invested Rs. 5 lakh in Small cap fund (
or any equity fund) in 3 years value is Rs. 10 Lakh , if you sale it after 3
years your LTCG is 5 Lakh and you have to pay Tax on 3.80 Lakh @12.50%
Now
suppose after 1 year of your Investment Value is Rs 6.20 Lakh , you sale to the
extent that your LTCG is below 1.20 Lakh say you sale 1.20 Lakh and reinvest it
so your investment value will be 6.20 Lakh and gain 0, after another 1 year
values goes up to 7.50 Lakh , you again sale to the extent of Rs. 1.20 and
reinvest so your Investment will be 7.40 Lakh and gain 0 , in similar way you
keep harvesting your Gain without paying 0 tax on LTCG
4. If you reinvest the entire LTCG amount within six
months into specified bonds like Capital Gains Bonds (CGBs), National Highways
Infrastructure Development Corporation Ltd. (NHIDCL) bonds, etc., the LTCG tax
liability will be Zero. You will earn Interest and Maturity Value
Greatest Secret of saving Tax on
LTCG is invest in your Wife name if she has no income that way you can save
LTCG upto 3 Lakh Tax free and Additional 1.20 Lakh in your Name.
Minimize or 0 Tax on sale of
Property:
1. Purchase a new property of same sale price or
Higher Value
a. Before 1 Year of Sale purchase a Property
b. within 2 Years of Sale purchase a Property
c.
within
3 years to construct a residential House
2. If You are unable to do above within specified time
limit park your Money in CGAS ( Capital Gain Account Scheme) , it is available
at most Bank , if you keep money in this
account your tax will be 0
3.
If you reinvest the entire LTCG amount within six months into
specified bonds like Capital Gains Bonds (CGBs), National Highways
Infrastructure Development Corporation Ltd. (NHIDCL) bonds, etc., the LTCG tax
liability will be Zero. You will earn Interest and Maturity Value
Happy Reading
@Ajit
