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Taxation - Do not Think Short Term Investing

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Taxation - Don't Think Short-Term





Buying and selling stocks and mutual funds too often will incur a tax liability

While investors in fixed deposits need to take into account the taxability of the income, even equity investors need to be careful about the tax implications. Long-term gains from stocks and equity funds are tax free. But if you sell before one year, there is a 15% short-term capital gains tax to be paid on the income. If you are trading too often in the hope of making quick gains, the tax would shave off some of your gains. It's worse in case of debt funds, where the minimum holding period for long-term gains has been extended to three years.

What you should do:

Short-term trading in stocks not only pushes up your tax but also limits your earning potential. Hold on to your stocks and take advantage of the tax exemption. Hold on to your debt funds for at least three years to avoid high tax.

NOT AVAILING EXEMPTIONS

If you are in the highest tax bracket and invest `1.5 lakh under Section 80C, you can bring down your tax by up to `46,350 (see table). However, not all taxpayers are able to capitalise on the tax saving opportunities available to them. Though individuals with low incomes may not be able to avail of the entire limit of `1.5 lakh, those with higher incomes can make full use.

What you should do:

Instead of waiting till the fag end of the financial year to start your tax planning, start investing under Section 80C from April itself.

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