Can I use systematic selling of equity funds to avoid paying a huge capital gains tax on long term gains? Is that feasible?

In our previous illustration we assumed that the entire units purchased were sold on the completion of 1 year. But when tax is imposed on LTCG, investors are going to phase out their selling. When you sell partial units, a major chunk of your redemption is in the form of capital redemption and only a small portion is in the form of LTCG. Let us understand this with an illustration. Let us also assume that the limit of Rs.100,000 has already been utilized so LTCG on equity funds is now taxable…

Particulars of the Equity Fund	All the units are sold	Partial units are sold
Name of the Fund	XYZ Equity Fund (Growth)	XYZ Equity Fund (Growth)
NAV on 01st Jan 2018	Rs.10	Rs.10
NAV on 01st Mar 2019	Rs.12	Rs.12
Return on investment	20%	20%
Number of Units owned	10,000 units	10,000 units
Number of Units sold	10,000 units	2,000 units
Redemption Value	Rs.120,000	Rs.24,000
Profit on sale of units	Rs.20,000	Rs.4,000
Tax payable on LTCT at 10.4%	Rs.2,080	Rs.416

What we are doing in the 2^nd case is that instead of selling all the units, we are only selling partial units. As a result, part of the money comes to you as principal and part as LTCG. Remember, the benefit of Rs.1 lakh exemption is available for each financial year, so instead of withdrawing the profit in lump sum in a single year, look to take it out in a phased manner to save tax. Thus by phasing your withdrawal in the second case, you have substantially reduced your tax outgo on LTCG. The fiscal year ends on March 31^st 2019. On April 01^st you can sell the balance units in the second instance and pay not tax as you are within the Rs.1 lakh limit. That is how phasing your selling can help you.