As FY22 draws to a close, be smart on your capital gains

Long-term capital gains of up to ₹1 lakh from stocks and equity-oriented funds are tax-free in a financial year. But you need to book profits before March 31 to pocket tax-free returns. “The same stocks and equity funds can be bought back again, but their price of acquisition for tax computation will get reset at a higher level,” said Sudhir Kaushik, cofounder and CEO of tax filing portal Taxspanner.com.

Before you sell, find out your capital gains for the year. This is easier than you think.

Mutual fund houses and stock brokerages provide a detailed capital gains statement within minutes of placing the request. Mutual fund investors can also get a consolidated capital gains statement from the transfer agency Computer Age Management Services. Once you know how much capital gains you have already made during the year, you will know whether to book long-term gains.

“In case taxable capital gains were earned during the year, advance tax on the gains should have been paid by March 15,” said Amit Maheshwari, Tax Partner of tax consultancy firm AKM Global.

Though that window closed last week, investors can still pay the tax to avoid penalties. They can also book losses now to reduce their gains.

Long-term capital losses can be set off only against long-term capital gains, but short-term capital losses can be set off against short-term or long-term capital gains.

If you were unlucky with some stocks (Paytm and Car Trade investors know exactly what this means), book losses now to adjust against gains from other investments.

There’s another silver lining around such losses. Till three years ago, long-term gains from stocks and equity funds were tax-free and therefore could not be carried forward. But now, unadjusted losses can be carried forward for up to eight assessment years from the year in which the loss was first computed. But make sure you file your return to be able to carry forward these losses.

“Even if there is no income or gain but only losses to report, it is mandatory to file income tax returns every year. Only then can one offset or carry forward the losses,” cautioned Dilshad Billimoria, managing director of Dilzer Consultants.

It is also a good idea to stock up on debt funds and other non-equity assets before March 31. If the holding period extends across four financial years, you get the indexation benefit of one more year.

“Investors can significantly reduce their tax outgo by claiming the indexation benefit of one additional year,” said Saraswathi Kasturirangan, partner, Deloitte India. This is also why it makes sense not to sell your non-equity investments right now but wait for one more week for the new financial year.