Here’s How To Save Capital Gains Tax

In India, capital gains tax is charged on profits gained from the sale of assets, such as stocks, bonds, real estate and other investments. It is applicable to both people and enterprises. The long-term capital gains (LTCG) exemption limit for transferring equity shares or equity-oriented units has risen from Rs 1 lakh to Rs 1.25 lakh, and the tax rate on gains from other assets has been reduced from 20 per cent to 12.5 per cent. If you made LTCG this year and want to reduce your tax burden, you could consider a variety of tax-saving strategies. By utilising some of these strategies, you can manage your tax responsibilities and boost your investment returns in the long run.

1. Tax-Loss Harvesting: Also known as tax-loss selling, it allows one to reduce the overall tax liability. It involves selling investments at a loss to offset gains from other investments. For instance, if you have ₹2 lakh in gains and ₹1 lakh in losses, you can reduce your taxable gain to ₹1 lakh by offsetting the losses.

2. Carry Forward Losses: If your capital losses exceed your capital gains, you can carry forward the excess losses for up to eight assessment years. So, if your loss is ₹3 lakh and gains is only ₹1 lakh, you can carry forward the loss of ₹2 lakh to offset future gains.

3. Utilise Capital Gains Account Scheme (CGAS): Deposit your capital gains into a CGAS account if you need more time to invest in a new residential property. This will allow you to defer the tax liability until you use the funds to purchase or construct a property within three years. It is especially useful for individuals who are unable to immediately reinvest their capital gains into new assets.

4. Invest In Section 54EC Bonds (Real Estate): You can also consider investing in Section 54EC bonds issued by the National Highways Authority of India (NHAI), Rural Electrification Corporation (REC), Power Finance Corporation (PFC), Indian Railway Finance Corporation (IRFC), or any other bonds notified by the Centre, within six months of selling real estate. These bonds offer tax exemption on LTCG up to ₹50 lakh and come with a mandatory five-year lock-in, during which the invested amount must remain untouched.

5. Invest In Residential Property (Section 54): You can also consider reinvesting the proceeds from the sale of a residential property into another residential property to claim exemption from capital gains tax. The new property must be purchased within a year prior or two years after the sale, or, constructed within three years of such sale. This provision is available to individuals and Hindu Undivided Families (HUFs).