You can still Save LTCG on equity by effective Planning Explained in detail with example
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
You may plan your investments as illustrated below and save tax amounting to approx. Rs 65,000 [94% of your 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
$ 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.
You can reach out to us at [email protected] or +91 9702604090.
CA Nitesh Buddhadev, Founder and CEO, Nimit Wealth Management
CA Mitsu Nitesh Buddhadev, Co- Founder, Nimit Wealth Management
Author Bio
I had some shares of Infosys which had multiplied due to stock splits and bonus. I have participated in Infosys buyback. Will LTCG be applicable in this case (since less than Rs. 1 lakh and before 31/03/2018)
Dear Sir,
I have a query. Pls.help.
I have 500 Shares of HCLT. Purchased 3 years back for 540/-. Price as on 31st Jan is approx 900/-.
If I sell it in March 2018, with Sale price of 990/-, do I need to pay 10% LTCG tax. If so, what is the calculation. Pls. guide.
good article