FY 2023-24 The process of filing income tax returns has started. If you invest in the stock market, then it is necessary to give details of the income from shares in the return. Tax will be levied on this, but do you know that you can save tax on the profits of shares. Yes, it is possible. Now, you must be wondering what is the way by which you can save tax, so let’s know.
Short and Long Term Capital Gains Tax
Let us tell you that there are two types of taxes on the earnings from shares. Short Term Capital Gain Tax (STCG) and Long Term Capital Gain Tax (LTCG). When you sell equity within 12 months of buying it, the profit earned is considered as short term capital gain tax. Under the income tax laws, 15% tax is levied on short term capital gain tax. On the other hand, if you buy shares and sell them after 12 months, then long term capital gain tax is levied on it. On the other hand, the loss incurred after 12 months is called long term capital gain loss. Till March 2018, there was no tax on long term capital gains (LTCG) from the sale of equity or equity-oriented mutual funds. In Budget 2018, the central government had announced that LTCG up to Rs 1 lakh would be tax-free and more than that would be taxed at the rate of 10%.
Savings through tax loss harvesting
When you sell a stock for a profit, it is a ‘realised gain’, hence subject to taxation. On the other hand, if you incur a loss on selling the stock, you can use that amount to offset your ‘realised gains’ and this strategy is known as tax-loss harvesting. While a taxpayer can use tax loss harvesting any time of the year to reduce his tax liability on the sale of equity or mutual funds, this method is mostly executed in March before the end of the current financial year. However, one can also avail tax loss harvesting while filing his income tax return. This way, if you have a loss last year and a profit this year, you can still save tax.
Keep the investment period long
Another smart way to save tax on stock market investments is to invest for the long term. If you invest for more than a year, it will come under long term capital gain tax. You will have to pay tax on this at the rate of only 10%. On the other hand, you will have to pay 15% tax in short term capital gain. ELSS (Equity Linked Savings Scheme) is a smart way to invest in mutual funds and save tax. This investment option is specially designed for those who want to save tax under Section 80C of the Income Tax Act.
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