If you've earned profits from equity shares or mutual funds, you might already know about the Long-Term Capital Gains (LTCG) tax. However, not everyone has to pay it! For small investors, retirees, and individuals with lower income, several strategies can help avoid or minimize capital gains tax legally. Let’s explore the smart ways you can save on LTCG and when you qualify for exemptions.
The most straightforward way to avoid paying LTCG tax is when your total income, including capital gains, falls below the basic exemption limit set by the Income Tax Department. Here's the current exemption slab based on age:
Individuals below 60 years: ₹2.5 lakh
Senior Citizens (60–80 years): ₹3 lakh
Super Senior Citizens (above 80 years): ₹5 lakh
If your total annual income — including salary, interest, rent, and capital gains — remains within these thresholds, you owe zero tax, even on your LTCG.
Additionally, under Section 111A, short-term capital gains (STCG) from listed securities are taxed at 15%, and under Section 112A, LTCG exceeding ₹1 lakh are taxed at 10%. But if your income remains under the basic exemption limit, no tax is applicable even under these sections.
Certain transactions are not considered "transfer" under the Income Tax Act and therefore attract no capital gains tax. Examples include:
Transfer of shares or mutual fund units as a gift
Transfer of assets to an irrevocable trust
Since these are not classified as "sales" for tax purposes, you’re free from any LTCG liability.
Investors in listed equity shares or equity-oriented mutual funds can benefit from tax-free LTCG up to ₹1 lakh per year under Section 112A.
For instance, if you make ₹99,000 in gains over a financial year, you pay zero tax. Only the amount exceeding ₹1 lakh is taxed at 10%. This is a huge advantage for small investors who trade or invest cautiously.
However, one important condition applies: the Securities Transaction Tax (STT) must be paid during both purchase and sale of shares.
If you’ve made long-term capital gains and wish to save tax, consider investing the proceeds into a new residential property under Section 54F.
Here's how it works:
You must not own more than one residential house (other than the new one) at the time of investment.
Investment should be made either one year before or two years after the date of sale.
If purchasing an under-construction property, the investment must be completed within three years.
Even if you invest only a part of your gains, you can claim a proportional tax exemption.
By following these rules, you can effectively avoid paying any LTCG tax on your sale proceeds.
For small investors, retirees, and low-income earners, these strategies offer effective and legal ways to save significantly on capital gains tax. Proper planning — such as monitoring your total income, timing your asset sales, and reinvesting wisely — can lead to substantial tax savings.
As financial rules and slabs can change over time, it’s always advisable to consult a qualified tax advisor before making critical investment decisions. But with the basics right, you can make your profits work harder for you — without sharing a big chunk with the taxman!
