Earning profits from equity shares or mutual funds? You might be eligible to save on long-term capital gains (LTCG) tax under specific conditions. Understanding these provisions can significantly benefit small investors, retirees, and individuals with modest incomes.
Let’s explore how you can minimize or even completely avoid paying LTCG tax with the right strategies.
In India, if your total income — including capital gains — is below the basic exemption limit, you are not liable to pay any tax, including on gains from stocks or mutual funds.
Here are the current exemption thresholds:
Individuals below 60 years of age: ₹2.5 lakh
Senior citizens (60-80 years): ₹3 lakh
Super senior citizens (80 years and above): ₹5 lakh
Key takeaway: If your total earnings (including profits from investments) stay within these limits, no capital gains tax is applicable, even if your transactions usually fall under taxable categories.
Short-Term Capital Gains (STCG): Taxed at 15% under Section 111A when equities are sold within one year.
Long-Term Capital Gains (LTCG): Taxed at 10% under Section 112A for profits exceeding ₹1 lakh from the sale of listed equities or equity-oriented mutual funds.
However, if your overall income remains below the exemption threshold, you won't owe any tax under either section, even if you have earned gains.
The Income Tax Act classifies certain transactions as non-transfers, meaning they are not subject to capital gains tax at all. Some examples include:
Transferring shares or mutual fund units as a gift.
Transferring assets into an irrevocable trust.
Since these are not recognized as sales or transfers, they do not attract any capital gains tax liability.
Under Section 112A, when you invest in listed equity shares or equity mutual funds, and have paid the required Securities Transaction Tax (STT), you are entitled to a ₹1 lakh exemption every financial year on long-term capital gains.
For example, if you make a profit of ₹99,000 in a year through such investments, you will not have to pay any LTCG tax. Only gains above ₹1 lakh attract a 10% tax.
This provision especially benefits small investors who accumulate modest gains annually through equity markets.
Another excellent way to save on long-term capital gains tax is by investing in a residential property under Section 54F of the Income Tax Act.
Here’s how you qualify:
You must not own more than one residential property at the time of the new purchase.
Investment in the new property must be made either one year before or within two years after the sale of the original asset.
If buying an under-construction property, the construction must be completed within three years.
Even if you reinvest only a portion of your gains, you can claim a partial exemption proportionate to the amount invested.
This route is highly beneficial for investors looking to grow their real estate portfolio while minimizing their tax burden.
Saving on capital gains tax is entirely possible with smart financial planning and awareness of existing tax provisions. Whether it’s utilizing the basic exemption limits, investing gains in residential property, or taking advantage of specific transaction exemptions, knowing your rights can help you protect your hard-earned wealth.
Pro tip: Always keep proper documentation of all your investments and transactions to ensure smooth processing if tax authorities request verification.
With a little strategic planning, you can ensure that taxes don’t eat into your investment returns — allowing you to maximize your savings and future financial security.
