ITR filing: When filing your income tax return (ITR), it’s important to pick an investment plan that can save you money on taxes. So, while aiming for investment returns, don’t forget about potential tax savings. Understanding the tax implications of stock market investments is crucial for optimising returns. According to experts, individuals investing in the Indian stock market can utilise several income tax planning strategies to increase their returns.
Long-Term Capital Gains (LTCG) TaxIn India, long-term capital gains tax applies to gains from the sale of listed equity shares and equity-oriented mutual funds held for more than one year. Mumbai-based tax and investment expert Balwant Jain suggested holding equity investments for at least one year to benefit from the favourable LTCG tax rate of 10%.
“Gains up to ₹1 lakh in a financial year remain tax-exempt,” Jain said.
Equity-Linked Savings Schemes (ELSS)
Invest in ELSS mutual funds to enjoy potential capital appreciation and tax savings under Section 80C of the Income Tax Act. This helps in reducing taxable income while promoting long-term wealth growth.
Systematic Investment Plan (SIP)Investing through SIPs in mutual funds allows investors to reduce the impact of market volatility. “Utilise SIPs in equity mutual funds for rupee cost averaging and compounding benefits. As LTCG tax doesn’t apply to gains up to ₹1 lakh per year, SIPs are a tax-efficient choice,” said CA Sandeep Agrawal, Director and Co-founder at Teamlease Regtech.
Tax-Efficient Asset Allocation
Diversify across asset classes for optimal tax efficiency. Sandeep Agrawal advised to consider debt investments like bonds and fixed deposits alongside equities to balance returns and minimize short-term tax liabilities.
Utilise Tax-Efficient Investment Options
Explore tax-saving avenues like the Public Provident Fund (PPF), National Pension System (NPS), and Tax-Saving Fixed Deposits. These options offer deductions and tax benefits while contributing to long-term financial goals.
Tax Harvesting Strategies
According to CA Sandeep Agrawal, individuals should employ loss harvesting by selling underperforming investments to offset capital gains and reduce the overall tax burden. Choose growth options for mutual funds to defer LTCG tax until selling rather than receiving dividends.
Investors need to consult with a tax advisor or financial planner to understand the implications of these strategies on their specific financial situation and to ensure compliance with Indian tax laws. Additionally, tax laws and regulations may change over time, so it’s crucial to stay updated with the latest developments.Disclaimer: The views and recommendations made above are those of individual analysts, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
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