ITR Filing: Know About Tax Reducing Strategies On Stock Market Profits

Outlook Money

Tax Saving Options

Once the end of fiscal year approaches, one starts to consider tax-saving options. With the market surge generating profits, one lists down the strategies to minimize taxes on these gains and retain as much of earnings as possible.

Tax Saving

Capital Gain

There are two types of Capital Gains: short-term capital gains (STCG) and long-term capital gains (LTCG). Income from capital gains refers to any profit or gain realized from the sale of a capital asset. These gains are taxed in the year the asset is transferred, known as capital gains tax.

Capital Gain

LTCG

Until March 2018, LTCG from stocks or equity-oriented mutual funds were exempt from taxation. Since then, LTCG is tax-free up to Rs 1 lakh; any amount above that is subject to a 10% tax.

LTCG

Strategies to Save Tax on Stock Market Profits

1. Tax Loss Harvesting

When one sells a stock for a profit, it is considered as realized gains and is thus taxed. If, however, a loss is incurred on selling stock, one can use the amount to offset the realized gains. This is known as tax-loss harvesting.

Profit

2. Extend Investment Duration for Long-Term Gains

Another way for saving tax is to extend the investment horizon to qualify for LTCG rates. By holding investments for at least a year, any profits from selling these investments qualify for lower LTCG tax rates. This strategy helps save on taxes compared to STCG, which are taxed at higher rates.

LTCG

3. ELSS Tax-Saving Investment

Under Section 80C of the Income Tax Act, an Equity Linked Savings Scheme (ELSS) is an investment that can save taxes. Investing in ELSS allows investors to receive a tax rebate of up to Rs 1,50,000 each year, potentially saving up to Rs 46,800 in taxes.

ELSS