A COMPREHENSIVE GUIDE TO SAVING CAPITAL GAINS TAX IN INDIA

Capital gains tax is an essential aspect of taxation in India, applicable when you sell certain assets and make a profit. However, there are several legitimate strategies you can employ to save on capital gains tax. In this blog, we’ll explore various scenarios and provide practical examples to help you understand how to minimize your tax liability.

 

 

Long-term Capital Gains (LTCG)

Scenario: Selling Stocks after Holding for More Than One Year

 

Example: Rahul purchased 500 shares of XYZ Ltd. in January 2019 at Rs. 100 per share. In February 2021, he sold these shares at Rs. 200 per share, resulting in a gain of Rs. 50,000.

 

 

capital gains

 

a. Utilizing Section 54EC: Rahul can invest the capital gains (up to Rs. 50 lakhs) in specified bonds issued by NHAI or REC within six months to save tax on LTCG. This exemption is available only once in three years.

 

 

b. Opting for Section 54F: If Rahul invests the entire sale proceeds (not just capital gains) in a residential property within two years or constructs a property within three years, he can claim exemption under Section 54F.

 

 

2. Short-term Capital Gains (STCG):

Scenario: Selling Property within Three Years of Purchase

 

 

Example: Meera bought a residential property in April 2020 for Rs. 50 lakhs. In September 2021, she sold it for Rs. 65 lakhs, resulting in a gain of Rs. 15 lakhs.

 

 

a. Offsetting with STCG Losses: If Meera has incurred short-term capital losses (STCL) in other assets during the financial year, she can offset these against her STCG. This will reduce her taxable income and the resultant tax liability.

 

 

b. Reinvesting in a Residential Property: Meera can reinvest the entire capital gains within two years or construct a residential property within three years to avail of the exemption under Section 54.

 

 

 

3. Capital Gains from Mutual Funds:

Scenario: Redeeming Mutual Fund Investments

 

Example: Aman invested in an equity mutual fund scheme in January 2018. In May 2021, he decided to redeem his investment, resulting in a long-term capital gain of Rs. 2 lakhs.

 

 

capital gains

 

 

a. Opting for Section 54EC Bonds: Aman can invest the capital gains (up to Rs. 50 lakhs) within six months in specified bonds to save on LTCG tax.

 

 

b. Utilizing Section 54F: Alternatively, Aman can invest the entire sale proceeds (not just capital gains) in a residential property within two years or construct a property within three years to claim exemption under Section 54F.

 

 

 

4. Capital Gains from Selling Gold:

Scenario: Selling Gold Jewellery or Bullion

 

Example: Sneha inherited gold jewellery worth Rs. 10 lakhs from her grandmother. In October 2021, she sold it and realized a long-term capital gain of Rs. 2 lakhs.

 

 

a. Opting for Section 54F: Sneha can invest the entire sale proceeds in a residential property within two years or construct a property within three years to claim exemption under Section 54F.

 

 

capital gains

 

b. Utilizing Section 54EC Bonds: Another option for Sneha is to invest the capital gains (up to Rs. 50 lakhs) in specified bonds within six months to save tax on LTCG.

 

 

Read More: Why MNC employees with Esops are on taxman’s radar

 

 

Saving on capital gains tax in India requires careful planning and understanding of the relevant tax provisions. By exploring various scenarios and examples, we have outlined strategies such as utilizing exemptions under Sections 54, 54EC, and 54F, offsetting losses, and reinvesting in specified assets. However, it is crucial to consult a qualified tax professional or financial advisor to ensure compliance and make informed decisions based on your specific circumstances. With the right knowledge and appropriate strategies, you can effectively minimize your capital gains tax and maximize your after-tax returns.

S-194-O Payment of certain sums by the e-commerce operator to participant

S-194-O Payment of certain sums by the e-commerce operator to e-commerce participant

Where Sale of goods or provision of services of an e-commerce participant is facilitated by an e-commerce operator through its digital or electronic facility or platform (by whatever name called),

Such e-commerce operator shall, at the time of credit of the amount of sale or services or both to the account of an e-commerce participant or at the time of payment thereof to such e-commerce participant by any mode, whichever is earlier,

Deduct income tax at the rate of 1% of the gross amount of such sales or services or both.

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Explanation

For the purposes of this subsection, any payment made by a purchaser of goods or recipient of services directly to an e-commerce participant for the sale of goods or provision of services or both, facilitated by an e-commerce operator, shall be deemed to be the amount credited or paid by the e-commerce operator to the e-commerce participant and shall be included in the gross amount of such sale or services for the purpose of deduction of income-tax under this sub-section.

No deduction shall be made from any sum credited or paid or likely to be credited or paid during the previous year to the account of an e-commerce participant, being an individual or HUF, where the gross amount of such sale or services or both during the previous year does not exceed Rs. 5 Lakhs and such e-commerce participant has furnished his PAN/ AADHAAR to the e-commerce operator.

A transaction in respect of which tax has been deducted by the e-commerce operator or which is not liable to deduction under this section, shall not be liable to tax deduction at source under any other provision of this Chapter.

For the purposes of this section, the e-commerce operator shall be deemed to be the person responsible for paying e-commerce participants.

5 Mistakes to Avoid while Filing your Income Tax Returns!

electronic commerce means the supply of goods or services or both, including digital products, over a digital or electronic network;

e-commerce operator means a person who owns, operates or manages digital or electronic facility or platform for electronic commerce;

e-commerce participant means a person resident in India selling goods or providing services or both, including digital products, through the digital or electronic facility or platform for electronic commerce;

services include “fees for technical services” and fees for “professional services”, as defined in the Explanation to section 194J.

11 states meet their Capex targets in the 1st Quarter, to raise Rs 15,721 crore.

11 states meet their Capex targets in the First Quarter, to raise Rs 15,721 crore.

In the first quarter of the current fiscal year 2021-22, a total of 11 states met the central government’s capital expenditure objective.

According to a statement made by the Ministry of Finance on Tuesday, the states include Andhra Pradesh, Bihar, Chhattisgarh, Haryana, Kerala, Madhya Pradesh, Manipur, Meghalaya, Nagaland, Rajasthan, and Uttarakhand.

The Department of Expenditure has granted these states permission to borrow an additional Rs 15,721 crore as an incentive.

The additional open market borrowing authority provided is equal to 0.25 percent of their GSP (GSDP). According to the Finance Ministry, the additional financial resources made available will assist states in increasing their capital expenditure.

Capital investment has a large multiplier impact, increasing the economy’s future productive capacity and resulting in a faster pace of economic growth.

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As a result, 0.5 per cent of the net borrowing ceiling (NBC) of 4% of GSDP for states in 2021-22 has been set aside for extra capital expenditure to be undertaken in 2021-22.

The Department of Spending set the additional capital expenditure objective for each state to qualify for this incremental borrowing.

 

States had to reach at least 15% of the objective established for 2021-22 by the end of the first quarter, 45% by the end of the second quarter, 70% by the end of the third quarter, and 100% by March 31, 2022, to be eligible for further borrowing.

The Department of Expenditure will conduct the next evaluation of state capital expenditures in December. The capital expenditures that states have made up to September 30, 2021 will be evaluated in this round.

In March 2022, a third assessment will be conducted based on capital expenditures incurred during the first three quarters of 2021-22.

States that accomplish real capital expenditure of at least 45 percent of the target by September 30, 2021, or 70 percent of the target by December 31, 2021, will be eligible for the capital expenditure-linked borrowing ceiling of 0.5 percent of GSDP.

In June 2022, states will conduct a final review of their actual capital expenditures. Any difference between a state’s actual capital spending for 2021-22 and its projected capital expenditure for 2021-22 will be deducted from the borrowing ceiling for 2022-23.