If an Investor holds Equity Shares for more than a year then capital gain on sale of those shares would be called Long Term Capital Gain and would be taxable @10%, and if these capital gain on sale of shares is up-to Rs.1 Lakhs then no tax need to be pay on this Rs.1 Lakh. So today we will understand how can we save tax on this long term capital gain on sale of long term equity shares:-

Tax Planning in case of Long Term Capital Gain on Sale of Equity Shares:-

If an Investor who has invested in Equity share/lump sum mutual fund over a long period of time and has unrealized Long term capital gains from holding long term equity shares then that Investor must have realized/book long term capital gain up-to Rs.1 Lakh in a year since capital gain on sale of long term equity shares is exempted up-to Rs.1 Lakh every year.

Investor may think why he should sale those equity shares which have gained a lot over a period and may give him high returns in future also, so here trick to save LTCG Tax is that after booking/realizing profit by selling holdings of those shares it can be bought back again after few minutes/hours/days, so by doing this you can save LTCG tax up-to Rs. 1 Lakh every year.

Understand this tax planning by this example:-

Suppose in FY 2023-24, you have shares which have gained a lot and giving you profit of Rs. 3 Lakhs & you are thinking to hold these shares till next year so if you sell these shares in next year in FY 2024-25 then you have to pay tax on Rs.2 Lakh since LTCG is exempted up-to Rs. 1 lakhs only so you have to pay tax @10% on balance Rs. 2 Lakhs. So Income Tax would be Rs.20,000.

So here if you do tax planning then you have to sell shares and realize/book profit of Rs. 1 Lakh in FY 2023-24 and in next year 2024-25 Rs. 1 lakhs and again in FY 2025-26, book another LTCG gain Rs.1 Lakhs. So accordingly Rs.3 Lakhs LTCG would be distributed in 3 years and there would be no tax liability on assessee.

This post is for educational purpose only.

Author

CA. Shobhit Kesharwani