The stock market is booming and investors of all the age group want to be part of this bull-run. Retirees are also investing in equities through mutual funds as well as directly in the shares. When you make a profit by investing in the equity market, it also makes you liable to pay taxes on such profit or capital gain. Tax amounts may vary depending on the size of the profit and the investment tenure. By smart planning of your equity investment, you can save a substantial part of the taxes on the capital gain. Before looking at ways to save taxes on capital gain on equity investment, let’s first understand how much tax you have to pay on it.

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Capital Gain Tax Applicable On Equity Investment

Profit on equity investments with a holding period of up to one year is called short-term capital gain (STCG), whereas investment with a holding period of more than one year is called long-term capital gain (LTCG). STCG on equity is taxed at a 15 per cent rate. LTCG of up to Rs 1 lakh on equity investment is tax-free whereas LTCG over and above Rs 1 lakh are taxed at a 10 per cent rate.

Now, let’s find out how you can save tax on equity investments.

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Saving Tax On Equity Investments

You can set off a long-term capital loss from the long-term capital gain to save tax applicable to it. It is allowed to carry forward capital losses for the next consecutive 8 years. To carry forward losses it is mandatory to file the ITR every year irrespective of whether you come under a taxable slab or not.

You can also plan a tax harvesting to save LTCG tax on your equity investment. You can book long-term capital gain on equities investment before the end of every financial year such that the capital gain doesn’t exceed the Rs 1 lakh limit and you can purchase them again the next day as fresh buying. You can book LTCG on equity with an amount exceeding Rs 1 lakh to the extent you have a long-term capital loss carried forward in your books. You may also book a fresh long-term capital loss for setting off from the LTCG that exceeds the Rs 1 lakh limit,and buy your stocks again at a later date to reinstate your portfolio structure.

It’s important to note here that you can set off long-term capital losses with only long-term capital gain, whereas you can set off short-term capital losses with both short and long-term capital gains, so you can plan the tax harvesting accordingly.

Plan your capital gain tax-saving steps and do not wait for the last day of the financial year to execute your plan. In the long term, saving taxes on your equity investments can help you save a huge amount.

The author is an independent financial journalist.