You can save tax of almost 90,000 rupees over a period of 10 years on long term capital gains from equity or equity mutual funds, if you make few transactions at the end of every financial year.
Long term Capital Gains are taxed @ 10% on the sale of listed securities, on the capital gains over and above 1 lakh (Section 112A).
If you ensure to realize capital gains of close to 1 lakh on a yearly basis for 10 years, you can save tax up to 90,000.
Example: Lets look at both traditional approach of invest and hold Vs the intelligent approach of taking benefit of tax break.
Invest and Hold Approach
| Invested Amount | 10,00,000 |
| # of years of Investment | 10 |
| Rate of Return | 10% |
| Future value of investment | 25,93,742 |
| Long term Capital Gains | 15,93,742 |
| Tax | 1,49,374 |
Tax Benefit Reaping Approach
Year of Investment | Investment Amount | Investment value after 12 months | LTCG | Tax |
| 1 | 10,00,000 | 11,00,000 | 1,00,000 | 0 |
| 2 | 11,00,000 | 12,10,000 | 1,10,000 | 1,000 |
| 3 | 12,10,000 | 13,31,000 | 1,21,000 | 2,100 |
| 4 | 13,31,000 | 14,64,100 | 1,33,100 | 3,310 |
| 5 | 14,64,100 | 16,10,510 | 1,46,410 | 4,641 |
| 6 | 16,10,510 | 17,71,561 | 1,61,051 | 6,105 |
| 7 | 17,71,561 | 19,48,717 | 1,77,156 | 7,716 |
| 8 | 19,48,717 | 21,43,589 | 1,94,872 | 9,487 |
| 9 | 21,43,589 | 23,57,948 | 2,14,359 | 11,436 |
| 10 | 23,57,948 | 25,93,742 | 2,35,795 | 13,579 |
| Tax | 59,374 |
Summary
| Tax in Invest and Hold Approach | 1,49,374 |
| Tax Benefit reaping approach | 59,374 |
| Tax saved | 90,000 |
Now you know the benefits, please feel free to share it with others so that they can also benefit out of this.
This is for education purpose only. Please consult your Financial Planner before taking any actions.