Tally

Share on Facebook

Share on Twitter

Share on LinkedIn

Share on Email

Share More


Since the time the FM has announced 10% Long Term Capital Gains (LTCG) without indexation benefit on Equity investments, there is continuous debate and discussion on the same.

You must have read multiple articles on how the LTCG will be determined, the rules, grandfathering provision and so on.

Here we show you how to use these rules to get maximum benefit out of the same.

Let's assume that you invested Rs 6 lakhs in equity investments as on 31.01.2017. You require this amount for your Goals in 2024.

(Rs in lakhs)


Year

Date of Investment

Investment amount

Date of Sale

Market Value*

Capital Gains

Action

Remarks

2024

31-01-2017

6.00

06-04-2024

13.26

7.26

Book profit and withdraw amount

Assuming that the highest value of this investment was Rs 6.50 lakhs as on January 31, 2018.

Pay tax on [Rs 13.26-Rs 6.50] i.e. 10% of Rs 6.76 lakhs plus 4% surcharge i.e. Rs 70,347


* Assumed 12% return Nimit Wealth Management

You may plan your investments as illustrated below and save tax amounting to approx. Rs 65,000. [94% of the original tax liability]

(Rs in lakhs)


Year

Date of Investment

Investment amount

Date of Sale

Market Value*

Capital Gains

Action

Remarks

2018

31-01-2017

6.00

After Jan 31, 2018 but before Mar 31, 2018

6.72

0.72

Book profit and re-invest amount again

No tax as Budget comes into effect only on April 01, 2018

2019

31-03-2018

6.72

01-04-2019

7.53

0.81

Book profit and re-invest amount again

No tax as LTCG is below 1 lakh

2020

01-04-2019

7.53

02-04-2020

8.43$

0.90

Book profit and re-invest amount again

No tax as LTCG is below 1 lakh

2021

02-04-2020

8.00$

03-04-2021

8.96#

0.96

Book partial profit and re-invest amount again such that gain does not exceed 1 lakh

No tax as LTCG is below 1 lakh

0.43$

-

0.48

-

Carry forward investment

2022

02-04-2020

0.48

-

0.54

-

Book partial profit and re-invest amount again such that gain does not exceed 1 lakh

Carry forward investment

03-04-2021

0.96#

-

1.08

-

Carry forward investment

8.00#

04-04-2022

8.96##

0.96

No tax as LTCG is below 1 lakh

2023

02-04-2020

0.54

-

0.60

-

Book partial profit and re-invest amount again such that gain does not exceed 1 lakh

Carry forward

03-04-2021

1.08

-

1.20

-

Carry forward

04-04-2022

0.96##

-

1.08

-

Carry forward

8.00##

05-04-2023

8.96

0.96

No tax as LTCG is below 1 lakh

2024

02-04-2020

0.60

-

0.68

0.07

Book profit and withdraw amount

Pay 10% tax on 0.42 lakhs plus 4% surcharge i.e. Rs 4,380

03-04-2021

1.20

-

1.35

0.14

04-04-2022

1.08

-

1.20

0.13

05-04-2023

8.96

06-04-2024

10.04

1.08


*(Assumed 12% return Nimit Wealth Management

$ Out of amount invested as on 02-04-2020 of Rs 8.43 lakhs. Book profit on investment of Rs 8 lakhs and carry forward investment of Rs 0.43 lakhs

# Out of amount invested as on 03-04-2021 of Rs 8.96 lakhs. Book profit on investment of Rs 8 lakhs and carry forward investment of Rs 0.96 lakhs

## Out of amount invested as on 04-04-2022 of Rs 8.96 lakhs. Book profit on investment of Rs 8 lakhs and carry forward investment of Rs 0.96 lakhs

Simply, by churning your portfolio at the appropriate time returns can be maximised and tax can be minimised. This would require in-depth research and analysis.

This is one of the simplest examples and yet so complicated.

There are many such ways to minimize your tax liability viz. investments through Systematic Investment Plan (SIP), Systematic Transfer Plan (STP) and Systematic Withdrawal Plan (SWP). Paying 10% tax on asset generating 12% to 15% return is better than paying 20% (or 30%) tax on asset generating 6% to 7% return.

Always remember Compounding is the 8th wonder of the World and this 10% LTCG will be non-event in a few days. Believe in India’s long-term Growth Story.

Planning is integral to achieving your Goals. Plan your finances and taxes to be in a WIN – WIN situation.

The author can also be reached at niteshbuddhadev@gmail.com


Tags :



Category Others, Other Articles by - CA Nitesh Buddhadev 



Comments


update