Capital gains are profits or gains that you realize from the sale of capital assets. Depending on how long the asset was owned by you before the gain was realized, there are two categories for the gain: short-term capital gains and long-term capital gains.
Known as the capital gain tax, this tax is levied on this capital gain. This tax is assessed under the category of capital gains on the sale that occurred the previous year.
Ways To Save Tax on Capital Gain
A few tried-and-true methods exist for reducing or eliminating tax on capital gain . To properly decrease liabilities, you need to understand your portfolio well and understand net returns. In the following ways:
Book Earnings When They Are Due
You need to be a little more watchful in this situation so that you can gauge your progress towards earning Rs. 1 lakh in income. Just before it achieves a profit of Rs. 1 lakh, sell your shares or mutual funds and book your gains. This will exempt your gain from LTCG tax. There are no restrictions on repurchasing the same stocks and mutual funds after realizing a profit.
Equalize Capital Gains And Losses.
There are losses more often than not, while they are occasionally beneficial. First, it must be a capital loss. The excess profit can be offset by the loss, resulting in a net gain, if there is a profit on another mutual fund or share that is greater than Rs. 1 lakh. This reduces or gets rid of the tax liability. As follows:
Assume you earned a profit of Rs. 1,40,000 (the taxable profit is Rs. 40,000) on a single investment.
You currently own another investment that has a loss of Rs. 20,000 [no tax liability].
You will discover that although you previously had to pay tax on Rs. 40,000, you now only have to pay LTCG tax on Rs. 20,000, thus halving your tax due, if you calculate the net gain (which is Rs. 40,000 - Rs. 20,000 = Rs. 20,000).
Investing Through Relatives
Many families' majority of family members don't invest in any financial products. Therefore, if you can open Demat accounts in their names and distribute your investment among several accounts, each account will have a Rs. 1 lakh tax exemption threshold. Therefore, if you invest from 4 distinct accounts, you essentially create an exemption threshold of Rs. 4 lakh.
Conclusion
Please take note that long-term capital gains must be reported in your annual income tax returns; otherwise, the tax authorities may issue a notice. If you are having trouble calculating the long-term capital gain (LTCG) on your investments over the course of a fiscal year, get expert assistance.