How to save tax on capital gain
Short Term capital gain.
Ensure a holding period of over 12 M for equity and mutual funds Sec 112 A to qualify for lower 10% or 12.5% tax rates instead of 20%.
Short term capital gain does not qualify for Reinvest exemption. Under Sec 54(selling Residential house and investing in another residential house) 54 F (selling Non-residential assets, shares, gold, land by investing in residential house) or 54 EC (selling land or building by investing in specified bonds).
Tax loss harvesting i.e. setoff of losses is allowed, with proper filing of returns by due date.
Short term capital losses can be set off from short term capital gain and long-term capital gain. The losses can be carried forward to 8 AY.
Specific exemption (Agricultural land) under Sec 54 B Sort term capital gain from sale of agricultural land is exempt provided reinvested in another agricultural land and Sec 54 D Short term capital gain from sale of industrial land provided reinvested in another industrial land.
Rebates while 111 A gains (20%) are not eligible for rebates, not other STCG at slab rates can be used to exhaust the basic exemption limits.
Long Term capital gain
Stay under the 1.25 lacs exemption limit on equity investments.
Taxes on capital gain can be saved by Reinvestment process,
Capital gain from Shares and other non-residential assets (land, gold etc) Reinvest the entire sale proceed into a residential property under section 54 F (1 year before or 2 years after sale or 3 years for construction or invest in qualified government bonds under section 54 EC) NHAI, REC, PFC, IRFC within 6 months capped at 50 lacs.
If not fully invested before the income tax return deadline, deposit the amount in CGAS (Capital gain account scheme) with a authorized bank to avoid tax.
This can defer the tax.
The exemption under section 54 F is capped at 10 crores.
If you Invest more than 10 Cr in a new residential property, any gain beyond this cap is taxable.
If the new residential property is sold within 3 years, the tax exemption will be revoked.
Ensure shares are held for more than 12 months (For listed shares) to qualify as long term capital gain.
Capital gain from Sale of house property Invest the capital gain into a residential property under section 54 F (1 year before or 2 years after sale or 3 years for construction or invest in qualified government bonds under section 54 EC) NHAI, REC, PFC, IRFC within 6 months capped at 50 lacs.
Capital gain from sale of gold, land etc If we invest only part of sale proceeds, the exemption is applied proportionately.
The holding period of the original owner is considered.
Sale of inherited gold also qualifies for these exemptions.
Capital losses from other assets (shares) can be set off against the gold gains.
What happens if you withdraw investment or not able to invest,
Capital gain exemption claimed under Sec 54 F is revoked.
The unutilized amount is treated as capital gain in the year investment period expires or when funds are prematurely withdrawn.
Penalty on CGAS if withdrawn funds and do not used for specified purpose within 60 days it becomes taxable.
Specific timeframe for House property if CGAS is not utilized within 2 years or 3 years it becomes taxable.
Premature bonds redemption,
If bonds are redeemed before 5 years the exempt amount becomes taxable in the year of redemption.
Interest on CGAS is taxable and TDS is applicable.
Premature withdrawal from Type B Term deposit account requires transfer to Type A Savings account first.
Where NRI can Invest,
Bank deposits.
Indian stock via Portfolio Investment Scheme.
Mutual funds.
There are certain regulations,
PIS account is mandatory for buying/selling on the secondary market, but not IPOs.
Cannot Invest in PPF though existing account, can be maintained until maturity.
Real estate (Residential or Commercial) Agricultural land is prohibited.
NPS (National Pension system) can open to save for retirement.
Fixed Income Instruments, Corporate bonds, NCD (Non-convertible Debentures) and government securities.
ULIPS Insurance Unit link Insurance plan and traditional Life Insurance plan.