Equity capital Gains can be saved by Simply churning your portfolio
Capital Gains have always been an essential topic for discussion while calculating the tax liability for an individual/non-individual. we are well aware that short term capital gains which arises when a security is sold within a year and are taxed @15% flat .
whereas Long term capital gains are those when exercised,creates a liability @10% of the gains above one lakh in context of equity. But, what if i say, we can reduce the long term capital gains liability just by doing simple calculative churning.
let us understand with an example:
Suppose we have invested Rs. 10 lakh in the year 2018 whose value became 11 lakhs in the year 2019 and 11.5 lakhs in the year 2020. If we redeem the amount in 2020 , capital gains would be 1.5 lakhs for which we have to pay flat 10% tax.
in the other scenario, if we redeem it in 2019 when it was 11lakh then we will be within exemption limit of 1 lakh so no tax. Again invest the amount in the year 2019 in same fund and again redeem at a maturity value of 11.5 lakhs. Here, the capital gains is only 50000 as the investment amount was 11 lakhs so, no tax here as well.