You can still save LTCG on equity by effective planning

CA Nitesh Buddhadev , Last updated: 03 February 2018
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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
2021	02-04-2020	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
	03-04-2021	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
	04-04-2022	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