In the midst of huge volatility in the market, the investor expects maximum returns. On the other hand, if we talk about equity investment, then there is tax to be paid on long-term capital gains. Today we talk about the ways in which you can save tax on capital gains.
Stock and equity oriented funds attract tax on long-term capital gains of more than Rs 1 lakh. In case of long term capital gain, tax exemption can be availed on long term capital gain up to Rs 1 lakh. For this, book profit before March 31 in such a way that you get the benefit of tax exemption. To avail this benefit, before March 31, you should sell as many stocks and equity funds as possible to get a profit of up to Rs 1 lakh. After that invest this money in the next financial year.
There is no guarantee that you will always make profits while investing in the stock market. Sometimes you may have to bear the loss. In such a situation, the loss incurred during these investments should be set-off from the capital gains of the same financial year.
The Income Tax Act allows a taxpayer to claim exemption on capital gains. Under section 54EC, a taxpayer can invest in capital gains bonds to claim exemption from long-term capital gains arising from investment in immovable property such as land or building. It is important to know here that these bonds have a lock-in period of 5 years and offer an interest rate of around 5 per cent. Hence, an investor should do a valuation before going for such low return long term investments.
The government is preparing to change the rules regarding capital gains tax. According to some media reports, in the next budget, the government may bring changes in capital gains tax to increase revenue collection.