InvestorQ : What are the important points about the LTCG tax that I need to be aware of to make the best use of the framework?
Mary Joseph made post

What are the important points about the LTCG tax that I need to be aware of to make the best use of the framework?

Answer
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sara Kunju answered.
1 year ago


First, the impact on the CAGR returns over longer periods of time will actually become negligible. However, you can look at one of the two options with respect to your financial plan. You can either look to downsize some of your wealth creation targets and plan accordingly. Alternatively, you can start saving and investing more so that your eventual target corpus still remains the same in post-tax terms. But the bottom line is that if you consider a time frame of 15-20 years, the impact will be very small to really make a difference to your wealth creation and to the financing of your goals.

Secondly, there was a cooling period till March 31st 2018 for the implementation. Till then, whatever long term profits you booked will be tax-free. You could have planned your profit booking accordingly, so as to monetize as much of your book profits as possible. It is only for sale of equities after April 01st 2018 that these new rules actually kick in.

Lastly, you will be better off holding equities for much longer periods, as is evident from the above example. Over longer periods the impact of tax on CAGR returns is much lower. Alternatively, you can look to split your profits across financial years to circumvent the Rs.1 lakh annual limit. This is a very good strategy to split your profits and use the limits for each year. You can also structure your withdrawals through a systematic withdrawal plan (SWP) to make it more tax effective.