InvestorQ : Are there any tips for investors and taxpayers to save on LTCG tax on equities?
prachi Patwardhan made post

Are there any tips for investors and taxpayers to save on LTCG tax on equities?

Answer
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1 year ago


In the post LTCG scenario, most of us are left with four distinct choices in front of us to make efficient allocation to save tax and enhance wealth.

First and foremost, don’t obsess yourself too much over this LTCG tax. As you can see even with some basic calculations, the impact is less than 50 basis points in terms of annual returns when you consider a longer time frame of 10-15 years. That is hardly anything substantial for you to worry about.

Secondly, you can look to either reduce your final corpus or increase your monthly SIP. An increase of 7-8% in your monthly SIP contribution is good enough. The thumb rule is to increase your monthly SIP by the percentage fall in the eventual corpus. This is approximate but gives you actionable results.

Thirdly, you can look to gradually plan your withdrawal so that the benefit of Rs.1 lakh is either taken out as a STP into a debt plan. That is more tax effective. You can either take some profits out each year or do so every alternate year so that you avoid bunching too much of profits in the last year.

Lastly, you can also look to withdraw your corpus over time as a systematic withdrawal plan. That is more tax efficient than paying 10% as taxes. That is because, in an SWP you only pay LTCG tax on the profit component and your SWP withdrawal has a principal component and a return component. That makes SWPs a lot more efficient as a tool of managing your tax outflows and your eventual wealth creation.