Plan Your Taxes on Equities

With the onset of new year 2022-23, Tax Planning is getting attention and Equities are perhaps the important piece of jigsaw puzzle

Some imp steps to plan Long term & Short term taxes are as below:-
  1. Let us understand first types of capital gains that are taxed in equities. These are,
    a.Short term capital gains
    b.Long term capital gains. 
  2. If an investor is holding shares listed on a recognized stock exchange (NSE, BSE) for more than 12 months, the gain/loss arising from the sale shall be ‘Long’ term. Else, it shall be ‘Short’ term. 
  3. Now let see the rates of taxes on these gains. 
  4. Short term gains on the above shall be taxed at 15% u/s 111A if STT (Securities Transaction Tax) is paid. Please note that usually every investor pays STT which is charged at 0.1%, both at the time of buying as well as selling the shares. 
  5. Long term gains on the above shall be taxed at 10% u/s 112A only on capital gains exceeding Rs. 1 lakh. So, if your long term gains come at Rs. 3 lakh, then you need to pay Rs. 20,000 (10% of Rs. 2 lakh). 
tax plan
  1. So, the very first tax saving tip here is to book short term loss on shares. To simplify, sell the short term shares in loss before 31st March. By doing this, you are actually using that loss to set off against your short term gains and hence save tax at 15%. 
  2. Follow this. Look at your portfolio, there can be few stocks which you bought during the financial year. If it is making loss, sell them and book the loss on paper at least. Doing this will help you set off it against both short term and long term gains. 
  1. Remember this, if you are convinced that the stock is a great buy even though in loss, you can buy again after a couple of days. But selling once and booking loss is actually helping you save taxes. 
  2. Also, if you are late in selling, say if you sell the stock in loss after one year, it will become long term loss. So, better to sell them during the FY. 
  3. And as discussed earlier, you cannot set off long term loss against short term gains (taxed at 15%). You will have to set off it against only long term gains (taxed at 10% and that too after the exemption of Rs. 1 lakh). 
  1. You must book long term gains on paper every year. Say you have shares that are making you a long term gain of Rs. 1 lakh, you need not pay tax on this as long term gains are exempt to the tune of Rs. 1 lakh. 

So, it is always prudent to book long term gains every year at least to the tune of Rs. 1 lakh. Remember, this limit of Rs. 1 lakh exemption on long term capital gains is every financial year. 

12.Another one imp. aspect is filing of your income tax return in time. The due date for individual and HUF (non audit case) is 31st July and for others it is 31st Oct.
Belated return filing would mean non eligibility for carrying forward the short term and long term losses 

  1. Short and Long term capital loss can be carried forward for 8 assessment years. Again, Long term loss can be carried forward to be used against only long term gains. Whereas, Short term loss can be carried forward to be used against both short and long term gains. 
  2. The losses from intraday trading are tagged as ‘Speculation loss’ and this cannot be set offed against the regular short term or long term loss on sale of shares. 
  3. So in nutshell,
    a. Book short term loss before 31st March.
    b. Book long term gains to save tax on gains upto Rs. 1 lakh.
    c. File the income return on time.