You are required to pay tax on any Capital gains that you make from equity funds that you invest in. Short-term Capital gains and long-term Capital gains are both possible based on the time span of your investment. These are short-term financial gains, for example, when a person holds an equity fund for less than one year.
What is Capital Gain?
The word “Capital gain” refers to any profit or gains that are realized through the sale of a Capital asset. Capital encompasses a person’s possessions, including real estate, vehicles and precious metal such as gold, as well as any stock or bond holdings.
- As a result, taxpayers are responsible for paying tax on this gain or profit in the same year that the Capital asset is transferred.
- When it comes to paying taxes on short-term Capital gains (STCG), there is very little relief available. However, there are provisions that can save you money on long-term Capital gains (LTCG).
Capital Gain Tax on Sale of Property
- When selling a residential property, the owner must pay Capital gains tax. When a person sells their home, they are subject to a Capital gains tax because they normally make money from the transaction.
- Therefore, if you are thinking about selling your property, you should be aware that you will be required to pay Capital gains tax on the profit that you made after taking into account the benefit of indexation and inflation.
- Any land or property sold within 3 years of acquisition is regarded to be short-term Capital gains.
Example of Long Term Capital Gain Tax on Equity
At the end of April 2017, Chitra placed Rs. 1 lakh (Rs. 1,000,000) into an equity fund, which had a NAV of Rs. 12. There were no outstanding units in the equity-oriented fund when it was liquidated in 2020 at a NAV of Rs 32. Since Chitra’s investment in equity-oriented funds was held for more than a year, you are entitled to long-term Capital gains (LTCG). To date in April 2017, Chitra has invested a total of 8333 equity fund units (worth Rs 1, 00,000/Rs 12).
Is It Possible To Save Tax On Long Term Capital?
- You are able to deduct any Capital losses suffered on the sale of equity-oriented funds from any Capital gains that you have realized from those funds.
- Long-term Capital losses, on the other hand, can only be offset by long-term Capital gains in calculating taxable income. It is permitted to carry forward Capital losses for a maximum of 08 years in can one cannot set off losses within that time period.
- Because these losses are deductible, you can offset these losses against future Capital gains. Even if you don’t have any income, you must still file an ITR and include your losses.
- The tax on long-term Capital gains (LTCG) can be minimized or eliminated by following a few simple rules of thumb. In order to properly decrease liability, you need to be well-versed in your portfolio and aware of the net returns. You can do this in a number of ways such as
(A) Involving family members in the investment process
(B) Make sure to bank your gains at the appropriate time
(C) Take a long-term Capital loss to counteract a long-term gain.
Note: Streetofinvestment.com assumes no responsibility for the consequences of any decisions made based on the information provided. For educational purposes solely, the information provided here is broad in nature. Readers are urged to take caution and obtain independent professional advice before making any investment choice in connection to any financial instrument. We hope you like this article. Keep supporting us and also refer other blogs for more information.