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Business Standard
2 days ago
- Business
- Business Standard
Planning to redeem MFs? AY 2025-26 tax rules may hit your returns
A slew of tax changes, effective from July 23, 2024, has altered how your mutual fund gains will be taxed in Assessment Year (AY) 2025–26. From higher long-term capital gains (LTCG) taxes on equity mutual funds to the removal of indexation benefits on older debt funds, investors now need to rethink their strategies. Experts say the timing of redemptions and choice of funds could have a noticeable impact on post-tax returns. Redeeming before or after July 23: Why timing matters Col Sanjeev Govila (retd), certified financial planner and chief executive officer of Hum Fauji Initiatives, a financial advisory firm, says that hesitation could cost investors more in taxes. - Equity MFs: Suppose Rohan invested Rs 10 lakh in July 2021 and sells for Rs 16 lakh. - Before July 23: LTCG tax is 10 per cent after Rs 1.25 lakh exemption, resulting in Rs 47,500 tax. -After July 23: Tax rate rises to 12.5 per cent, increasing tax to Rs 59,375. - Debt MFs (bought before April 1, 2023): Priya invested Rs 10 lakh, now worth Rs 16 lakh. -Before July 23: Indexation reduces taxable gain to Rs 3 lakh; tax = Rs 60,000. - After July 23: No indexation; full Rs 6 lakh taxed at 12.5 per cent, i.e., Rs 75,000. 'The loss of indexation means debt funds are now less nuanced and more expensive tax-wise,' Govila explains. SIPs now have split tax personalities Each SIP instalment is treated separately, and taxation depends on its purchase date. Govila says: -SIPs before April 1, 2023: Debt fund units held >2 years taxed at 12.5 per cent LTCG. -SIPs after April 1, 2023: Entirely taxed at slab rate, irrespective of holding period. For example, Arun, investing Rs 5,000/month since 2022, will find his older debt SIPs taxed favourably compared to those started later. A new six-way tax split Vivek Jalan, partner, Tax Connect Advisory Services LLP, suggests splitting SIP investments into six categories for clarity: - Bought on/before Mar 31, 2023; sold before July 23, 2024; held <36 months – STCG, taxed at slab rate - Bought on/before Mar 31, 2023; sold before July 23, 2024; held >36 months – LTCG, 20% with indexation - Bought on/after Apr 1, 2023; sold before July 23, 2024 – Taxed at slab rate - Bought on/before Mar 31, 2023; sold after July 23, 2024; held <2 years – STCG, taxed at slab rate - Bought on/before Mar 31, 2023; sold after July 23, 2024; held >2 years – LTCG, 12.5% without indexation - Bought on/after Apr 1, 2023; sold after July 23, 2024 – Taxed at slab rate 'Debt mutual funds sold after July 23, 2024, will no longer enjoy indexation. This flat LTCG of 12.5 per cent could hurt long-term investors,' Jalan says. Gold and international funds: Strategic, not tax-smart Chintak Shah, vice president, Anand Rathi Wealth Ltd., points out that gold and international funds have also lost their earlier edge. 'These funds were taxed at 20 per cent with indexation if held for over three years. Now, they're considered long-term after two years but taxed flat at 12.5 per cent, with no indexation,' Shah explains. Whether this is good or bad depends on returns. 'If such funds deliver over 9.5 per cent annual returns, the new regime is more favourable. Otherwise, the old system would have been better,' Shah adds.
Time of India
2 days ago
- Business
- Time of India
Taxable income below Rs 7 lakh: Will you pay zero income tax if this income includes LTCG and STCG for FY 2024-25?
Tax experts' view on tax rebate availability under Section 87A on LTCG, STCG Academy Empower your mind, elevate your skills NTR (No rebate u/s 87A on Capital gains, Adjustment against Basic exemption available) OTR (Rebate u/s 87A on Capital gains available except Covered U/s112a, Adjustment against Basic exemption also available) 1. No tax payable if the total taxable income(excluding any Capital gains) is upto 7 lakhs. Rebate u/s 87A is only available on income other than capital gains 1. No tax payable if the total taxable income(including any Capital gains) is upto 5 lakhs. Rebate is also available for STCG & LTCG(except Covered U/s112a) 2. On any capital gains. The tax is payable at applicable rates even if the taxable income is below 7 lakhs. NO rebate available 2. The taxable income should be below 5lakhs without giving the benefit of exemption of 1.25 under LTCG. Refer case 9 & 10 3. The adjustment of Capital gain is only available if the taxable income is below exemption limit i.e 3lakhs in NTR for FY 2024-25 3. The adjustment of Capital gain is available even if the taxable income is above basic exemption limit i.e 2.5 lakhs in OTR for FY 2024-25, but below 5lakhs 3. The chronology of adjustment against basic exemption will be STCG first & followed up by LTCG 4. The chronology of adjustment against basic exemption will be STCG first & followed up by LTCG New Tax Regime STCG LTCG u/s 112A LTCG Rebate u/s 87A No No No Adjustment against Basic exemption Yes Yes Yes Old Tax Regime STCG LTCG u/s 112A LTCG Rebate u/s 87A Yes No Yes Adjustment against Basic exemption Yes Yes Yes What if your total taxable income (excluding LTCG and STCG) is below the basic exemption limit? The income tax laws applicable for FY 2024-25 allow zero tax payable under the new tax regime if your net taxable income is under Rs 7 lakh. Just a heads up, last year, when you filed your ITR, the Income Tax Department did not allow tax rebates on special incomes such as short-term capital gains and long-term capital gains. Plus, Budget 2025 has clarified that starting from FY2025-26, you won't be able to claim the tax rebate under Section 87A on incomes taxed at a special rate. But what about this assessment year? Can you still get a tax rebate on special incomes when you file your ITR this year for FY 2024-25 (AY 2025-26)?To understand this better, picture this: Let's say your taxable income, not counting LTCG and STCG , is Rs 4.5 lakh. For FY 2024-25 (AY 2025-26), you have LTCG of Rs 75,000 and STCG of Rs 30,000 from equity mutual funds. This brings your total taxable income to Rs 5.55 lakh for FY 2024-25. Since your total taxable income (including LTCG and STCG) is under Rs 7 lakh, can you claim a tax rebate, or do you need to pay tax on LTCG and STCG?ET Wealth Online reached out to tax experts to find out if the tax rebate under Section 87A applies to all incomes, including special incomes, when filing the ITR for FY 2024-25 (AY 2025-26).Suresh Surana, Practising Chartered Accountant, says, "If a resident individual's total taxable income for FY 2024-25 (AY 2025-26) is below the specified threshold, then they may be eligible for a full tax rebate under Section 87A, subject to conditions."Also Read | Capital gains tax ready recknor for house property, listed equity The threshold income to be eligible for 87A rebate under new tax regime for income earned in FY 2024-25 is Rs 7 lakh. This threshold under old tax regime is Rs 5 lakh. The income tax laws allow tax rebate of Rs 12,500 under the old tax regime and of Rs 25,000 under the new tax regime under Section 87A. Due to the tax rebate, there is no tax payable on net taxable incomes up to Rs 5 lakh in the old tax regime and Rs 7 lakh in the new tax regime for FY 2024-25 (AY 2025-26).But the next big question is whether this threshold income will include LTCG and STCG."Such a tax rebate cannot be claimed against LTCG and STCG on equity-oriented mutual funds and listed shares, as these are taxed at special rates under Sections 112A and 111A, respectively, under the new tax regime. Even in such cases, a taxpayer can utilise the basic exemption limit to reduce the taxable portion of capital gains," explains the selection of tax regime will play the most crucial role in determining whether you will get LTCG and STCG included in income for considering 87A tax rebate Kaushik, Co-founder & CEO, Taxspanner (a Zaggle company), says, "The ITR utilities enable tax rebates under Section 87A on all incomes, including LTCG (except those covered under Section 112A) and STCG, if the taxpayer has opted for the old tax regime for FY 2024-25. What it means that LTCG and STCG income can be included to determine threshold for 87A under old tax regime for all asset classes except for LTCG on equity and equity-oriented mutual funds. However, if the taxpayer has chosen the new tax regime for AY 2025-26, then tax rebate under Section 87A is not allowed on the incomes taxed at special rates. What it means that all LTCG and STCG income which are calculated at special rates are not eligible to be included in income for determining the threshold for 87A rebate."Abhishek Soni, CEO of Tax2Win, an ITR filing website, says, "The Income Tax Department's utility for ITR filing for FY 2024-25 does not allow the rebate under Section 87A under the new tax regime if the income is taxed at special rates. However, under the new regime, the rebate can still be claimed if capital gains are taxed at normal slab rates (STCG on property or gains on debt mutual fund purchased on or after April 1, 2023). Under the old tax regime, the rebate under Section 87A is allowed on all types of income (except long-term capital gains under Section 112A) as long as the total income does not exceed Rs. 5 lakh."Also Read | ITR-1, ITR-2 or ITR-3: Which tax return form applies to your income? Vishwas Panijar, Partner, Nangia Andersen LLP, says, "For FY 2024-25 (AY 2025-26), individuals opting for the new tax regime with total income not exceeding Rs 7 lakh are eligible for a rebate of Rs 25,000 under Section 87A. The rebate is available even in case of LTCG/STCG other than LTCG arising from listed securities taxable under Section 112A. In other words, if the long- term capital gains (LTCG) that are part of your total income do not come from selling listed stocks or equity mutual funds, you can get a tax rebate of up to Rs 25,000. Similarly, a taxpayer can claim tax rebate on STCG from equity and equity mutual funds."Akhil Chandna, Partner, Global People Solutions Leader, Grant Thornton Bharat, says, "In our view, a resident taxpayer is entitled to claim rebate on income up to Rs 7 lakh (under new tax regime) on STCG arising from equity shares and/or equity mutual funds. However, such rebate is not available for LTCG on equity shares and/or equity mutual funds."Source: TaxspannerSource: TaxspannerThe basic exemption limit under the old and new tax regimes is different for FY 2024-25 (AY 2025-26).The basic exemption limit is Rs 2.5 lakh (Rs 3 lakh for senior citizens and Rs 5 lakh for super senior citizens) under the old tax regime and Rs 3 lakh (for all individuals) in the new tax regime for FY it is important to note that STCG and LTCG from listed equity shares and equity mutual funds are taxed at special says, "If someone earns less than the basic exemption limit (i.e., Rs 3,00,000 for the new tax regime and Rs 2,50,000 for the old tax regime for FY 2024-25), then the resident taxpayer can benefit from this exemption on special-rated income. Accordingly, if a resident of India has income solely from STCG and LTCG and other income is less than Rs 7 lakh, the taxpayer should look at the relief options available, like the basic exemption limit and rebate (as applicable). In these cases, not all of the LTCG and STCG will necessarily be taxed at special rates."The income tax laws allow taxpayer to claim exemption of up to Rs 1.25 lakh in a financial year on long-term capital gains from listed shares and equity mutual funds. This means that LTCG tax will be payable only in situations where LTCG exceeds Rs 1.25 lakh in a financial says, "The Income Tax Act allows a resident individual whose total income (excluding STCG and LTCG) is below the basic exemption limit to adjust STCG under Section 111A and LTCG under Section 112A against the unutilized portion of the basic exemption limit. This benefit is applicable regardless of whether the taxpayer opts for the old or new tax regime, provided certain conditions are met.""In either regime, if the total income (excluding STCG, LTCG, casual income) falls below the basic exemption threshold, the shortfall w.r.t. to such LTCG and STCG can be adjusted against such basic exemption limit. As such, taxpayers can adjust STCG and LTCG from equity mutual funds and shares under Sections 111A and 112A against the basic exemption if one's total income, including these gains, is below the basic exemption limit, in both the old as well as the new tax regime," Surana told to ET Wealth Online.
Time of India
3 days ago
- Business
- Time of India
Mutual fund taxation for AY 2025-26: Latest capital gain tax rules for equity mutual funds, debt mutual funds, international mutual funds, gold mutual funds, others
Academy Empower your mind, elevate your skills Capital gain rules from equity mutual funds Old Rule (Till July 22, 2024) New Rule (From July 23, 2024) Equity Mutual Funds STCG: 15% LTCG: 10% (above ₹1.25L exemption) STCG: 20% + cess LTCG: 12.5% (above ₹1.25L exemption) Debt Mutual Funds Purchased on or before Mar 31, 2023: STCG: Slab rate (if < 36 months) LTCG: 20% with indexation (if > 36 months) Purchased on or after Apr 1, 2023: Taxed at slab rate regardless of holding period Purchased till Mar 31, 2023 & sold on or after July 23, 2024: STCG: Slab rate (if < 2 years) LTCG: 12.5% without indexation (if > 2 years) Purchased on or after Apr 1, 2023: Same as before – slab rate regardless of holding Hybrid Mutual Funds Equity ≥ 65%: Taxed like equity mutual funds Equity < 65%: Taxed as per slab rate (like debt funds) Same treatment based on equity %: Equity ≥ 65%: Use new equity MF rules Equity < 65%: Slab rate (like debt) Gold Mutual Funds Taxed as per income tax slabs Same as old – taxed as per slab rate International Mutual Funds Taxed as per income tax slabs Same as old – taxed as per slab rate Fund of Funds (FoFs) If taxed like equity: Use old equity rules If taxed as slab: Apply slab rate Same rule continues: Equity-like FoFs – use new equity rules Others – slab rate ETFs (non-equity based) STCG: Slab rate (if sold ≤ 1 year) LTCG: 10% (if sold > 1 year, no indexation) STCG: Slab rate (if sold ≤ 1 year) LTCG: 12.5% (if sold > 1 year, no indexation) Capital gain rules for debt mutual funds Debt mutual fund investments made on or after April 1, 2023 Debt mutual fund investments made till March 31, 2023 Capital gain rules from hybrid mutual funds Capital gain rules for gold mutual funds Capital gain rules from international mutual funds Capital gain rules from Fund of Funds (FoF) mutual funds Capital gain rules from ETF investments Capital gains rule will change for these mutual fund investments from April 1, 2025 The capital gain tax rule for various categories of mutual funds has been updated in FY 2024-25. The new capital gain tax rules for mutual funds will stay in effect till they are changed again by the Wealth online spoke with Naveen Wadhwa, Vice-President of Research & Advisory at to understand the old and new capital gains tax rules for different categories of mutual funds. The rules mentioned below apply to individuals whose residential status is either Resident but ordinarily resident (ROR) or Resident but not ordinarily resident (RONR).The mutual fund capital gains taxation rules mentioned below are for the FY 2024-25 (AY 2025-26). These rules will help you to understand the capital gains tax calculation while filing income tax return (ITR) this says, "For taxation purposes, mutual funds are categorised as equity mutual funds and non-equity mutual funds. The new and old rules for the computation of capital gains from equity mutual funds are the same as those for listed shares. In the case of non-equity mutual funds, there are different taxation rules. This depends on the date of purchase and date of sale. Some of the non-equity mutual funds are debt mutual funds , hybrid mutual funds, international mutual funds and gold mutual funds ."Also Read: Capital gains tax ready recknor for house property, listed shares, unlisted shares for FY 2024-25 A mutual fund is categorised as an equity mutual fund if a scheme holds a minimum of 65% of its assets in equity and equity-related gains arising from the sale of equity mutual funds can be termed as short-term or gains from equity mutual funds are termed short-term capital gains (STCG) if they are sold on or before the completion of one year. These STCG are taxed at 20% plus gains are termed long-term capital gains (LTCG) if they are sold after the completion of one year. The LTCG is taxed at 12.5%.LTCG up to Rs 1.25 lakh in a financial year is exempted from tax. Hence, no tax is payable if the LTCG does not exceed Rs 1.25 lakh. This limit applies to the aggregate amount of long-term capital gains from equity mutual funds and listed equity shares. This means you will need to pay 12.5% LTCG tax only on the gains above Rs 1.25 equity mutual funds sold between April 1, 2024, and July 22, 2024, the old STCG and LTCG rules will categorisation of capital gains as STCG and LTCG based on the period of holding remains the same under both the old and new rules. STCG refers to those equity mutual funds that are sold on or before the completion of one year of purchase. LTCG refers to those equity mutual funds that are sold after one year from the date of rates for STCG and LTCG are different under the old rules. Under the old rules, LTCG from equity mutual fund is taxed at 10% without indexation benefit. STCG from an equity mutual fund is taxed at a rate of 15%.For the financial year 2024-25, the aggregate limit of Rs 1.25 lakh will apply for LTCG exemption on equity mutual funds and listed shares, irrespective of the date of sale. This tax needs to be paid only on the gains above Rs 1.25 lakh in the given financial capital gains from debt mutual funds, two key dates matter: the date of purchase and the date of sale. Here is a look at how the date of purchase and sale impacts your capital rules for taxing capital gains from debt mutual funds were revised starting April 1, 2023. The current capital gains rule applies to investments made on or after April 1, 2023. Since then, the rules for taxing capital gains from debt mutual funds have not changed. Currently, gains from debt mutual funds are taxed at income tax slabs applicable to their income, irrespective of the holding if your debt mutual fund investments were made on or before March 31, 2023?According to experts who spoke with ET, if debt mutual funds are purchased on or before March 31, 2023, the capital gains rules apply differently. This will depend on the date of debt mutual fund investments made till March 31, 2023, and sold on or before July 22, 2024, then capital gains will either be termed as STCG or capital gains will be termed as STCG if the debt mutual funds are sold on or before the completion of 36 months (three years). STCG will be taxed at the income tax slabs applicable to your gains from debt mutual funds will be referred to as LTCG if these are sold after the completion of 36 months (three years). LTCG on these debt mutual funds will be taxed at 20% with added indexation process of adjusting the purchase price to account for inflation by inflating costs is called debt mutual fund investments made till March 31, 2023, and sold on or after July 23, 2024, the capital gain rules are says, "Debt mutual funds sold on or after July 23, 2024 (that were purchased till March 31, 2023), will have no indexation benefit. The LTCG from these debt mutual funds (sold after the completion of two years) will be taxed at 12.5% without indexation. STCG from these debt mutual funds (if sold before the completion of two years) will be taxed at income tax slabs."Also Read: No indexation benefit if the debt mutual funds are sold on or after July 23, 2024 Hybrid mutual funds come in three types: conservative, balanced, and aggressive. The taxation of these categories of hybrid mutual fund depends on the securities held by the fund manager in the scheme per SEBI guidelines, these funds should have an allocation of between 65% and 80% to equities and between 20% and 35% to debt and other instruments, such as per SEBI guidelines, balanced hybrid mutual funds should have an allocation between 40% to 60% of total assets in equity and debt. No arbitrage would be permitted in this funds will have an allocation of between 75% and 90% to debt instruments and between 10% and 25% to equities, as per SEBI says, "For income tax purposes, mutual funds having a minimum equity allocation of 65% or more will be taxed in the same fashion as normal equity mutual funds."If the hybrid mutual fund is taxed like an equity mutual fund, then knowing the date of redemption is essential to determine the correct tax rate. This is because the tax rate for equity mutual funds is different under the old and new capital gains rules. However, if the hybrid mutual fund is taxed according to the income tax slabs, then there are no changes in the old and new capital gains rules. The date of redemption does not affect the calculation of capital gain tax for FY 2024-25 (AY 2025-26).Wadhwa says, "Other hybrid mutual funds having a minimum equity allocation of less than 65%, then capital gains from such mutual funds will be taxed at the income tax slabs applicable to your income. However, the taxation rule that will apply to your investment will depend on the date of investment and the date of sale. This is similar to how debt mutual fund taxation is mentioned above."Gold mutual funds in India typically invest in gold ETFs (Exchange-Traded Funds).Wadhwa says, "Capital gains from gold mutual funds are taxed at the income tax slabs. The old and new rules are the same for capital gain taxation from gold mutual funds. Here also, investors should be mindful of the date of investment and the date of sale to know the correct rules for capital gains taxation. This is also similar to debt mutual funds." This rule is applicable for AY mutual funds primarily invest in foreign equities. Wadhwa says, "Capital gains from international mutual funds are taxed at the income tax slabs. The old and new rules are the same for capital gain taxation from international mutual funds. Here also, investors should be mindful of the date of investment and the date of sale to know the correct rules for capital gains taxation. This is also similar to debt mutual funds." This rule is applicable for AY mutual funds invest in other funds. According to SEBI, "A Fund of Funds (FoF) invests in other funds. Investment in these funds helps investors spread their risks across various markets and asset classes while benefiting from professional fund management. A Fund of Funds is essentially a "fund made up of funds." It pools money from investors and invests it in a collection of other mutual funds, or exchange-traded funds (ETFs). By doing so, it provides a diversified investment portfolio managed by experts."Examples of FoF are - ICICI Prudential Thematic Advantage Fund (FoF), Aditya Birla Sun Life Asset Allocator FoF, Quantum Multi Asset Fund of the FoF mutual fund is taxed like an equity mutual fund, then knowing the date of redemption is essential to determine the correct tax rate. This is because the tax rate for equity mutual funds is different under the old and new capital gains rules. However, if the FoF mutual fund is taxed according to the income tax slabs, then there are no changes in the old and new capital gains rules. The date of redemption does not affect the calculation of capital gain tax for FY 2024-25 (AY 2025-26).Wadhwa says, "Where capital gains from the FoF mutual funds are taxed at the income tax slabs, the old and new rules are the same for capital gain taxation. Here also, investors should be mindful of the date of investment and the date of sale to know the correct rules for capital gains taxation. This is also similar to debt mutual funds." This rule is applicable for AY stand for Exchange Traded Funds. An individual can invest in these funds via their Demat accounts. ETFs are listed on stock exchanges. There are various types of ETFs, such as for stocks, debt, gold, new capital gains rules have simplified the asset class, as listed and unlisted securities, as well as non-financial assets. Based on the asset class, the holding period is the new rules, capital gains from listed securities are classified as long-term capital gains (LTCG) if the securities are sold after one year has passed. Otherwise, the gains are short-term capital gains from unlisted securities and non-financial assets are classified as long-term capital gains (LTCG) if the asset is sold after two years from the date of purchase. Otherwise, the gains are short-term capital to Wadhwa, "As ETFs are listed on the stock exchanges, the capital gains will be classified as LTCG provided units are sold after completion of one year. These LTCGs will be taxed at 12.5% without indexation benefit. STCGs arising from the sale of ETF units on or before the completion of one year will be taxed at the income tax slabs. This taxation will apply to all ETFs, where the underlying assets are other than equity shares. However, this new rule will apply to ETF units sold on or after July 23, 2024."Wadhwa further adds, "For ETF units sold on or before July 22, 2024, the gains will be taxed at 10% without indexation benefits, provided units are sold after completion of one year for gains to qualify as LTCG. In case gains are STCG, then it will be taxed at income tax slabs."The government has revised the definition of debt mutual funds in the Income Tax Act from April 1, 2025. As per the new definition, a debt mutual fund will invest more than 65% of its total proceeds in debt and money market instruments or a fund-of-funds with the underlying having a similar debt investment mix. The new definition came into effect on April 1, 2025. Earlier, the specified debt mutual fund was defined as a mutual fund where not more than 35% of its total proceeds are invested in the equity shares of domestic to this change of definition, taxation of specific mutual fund investments made on or after April 1, 2025, is impacted. These specific mutual funds are - International mutual funds, Gold mutual funds, Balanced hybrid funds, and fund of funds (where the debt portion is less than 65%).Wadhwa says, "Investments made on or after April 1, 2025, in the specified mutual fund schemes where the debt instruments are less than 65% will have different taxation rules. Under the new rule, gains will be termed LTCG if the mutual fund units are sold on or after the completion of two years. LTCG will be taxed at 12.5%. On the other hand, STCG of these mutual fund units will be taxed at the income tax slabs. For investments made in these mutual fund schemes between April 1, 2023, and March 31, 2025, the gains will be taxed at the income tax slabs, irrespective of the holding period. If investments made in these schemes on or before March 31, 2023, are held, then capital gains mutual fund units sold after the completion of two years will be classified as LTCG. This LTCG will be taxed at 12.5% without the indexation benefit. Else, gains will be termed as STCG and taxed at income tax slabs."
Mint
5 days ago
- Business
- Mint
I'm a senior citizen who earns income from interest and capital gains. How do I calculate my tax?
I am assuming the long-term and short-capital gains of Rs. 2.2 lakh and ₹ 1.5 lakh come from the sale of listed equity shares, or units of equity-oriented funds, real estate investment trusts (REITs) or infrastructure investment trusts (InvITs), which are subject to securities transaction tax (STT) and hence taxable under section 112A and 111A, respectively. In the case of LTCG, gains up to Rs. 1.25 lakh during the year are exempt from tax. Therefore, your taxable income would be Rs. 4.45 lakh (including taxable long-term capital gains of ₹ 95,000). Under the new tax regime, a rebate up to ₹ 25,000 under Section 87A is available if total income is below ₹ 7 lakh. For the purpose of determining whether such rebate is available, capital gains are to be considered. That is, if total income (including capital gains) does not exceed ₹ 7 lakh, no tax is payable on account of the rebate under Section 87A. However, Section 112A specifically says the rebate under Section 87A cannot be set off against the tax on long-term capital gains. There is no similar provision with respect to short-term capital gains, and therefore, as per the law, a rebate should be available against tax on short term capital gains. The tax authorities have, however, been taking the stand that a rebate under Section s 87A is not available even against tax on short-term capital gains. Claiming such a rebate is therefore likely to result in litigation. If you choose to claim the rebate against short-term capital gains, while rebate cannot be set off against long-term capital gains, you can set off the long-term capital gains against the exemption slab (i.e. Rs. 3 lakh) to the extent of your unused basic exemption from other income – bank interest in your case. Accordingly, your entire long-term capital gains under Section 112A can be set off against the exemption slab of ₹ 3 lakh and the tax on the balance short-term capital gains can be set-off against the rebate, resulting in no tax payable. However, the tax return utility does not allow the rebate to be set off against the tax on long-term and short-term capital gains and still computes the tax payable on the gains even if you input the rebate amount manually. If you choose not to avail of the rebate on the capital gains, your tax will be computed on capital gains exceeding ₹ 3 lakh (slab exemption). In other words, you may need to pay tax on ₹ 95,000 of long-term capital gains and on ₹ 60,000 of short-term capital gains (after adjustment against the slab). The rate of tax on such gains will depend on whether the assets were sold before or after 23 July 2024. Long-term capital gains are taxable at 10% on transfers up to 22 July 2024 and at 12.5% on transfers on or after 23 July 2024. Similarly, short-term capital gains are taxable at 15% on transfers up to 22 July 2024 and 20% on transfers after that. You will need to file ITR-2 on or before 15 September 2025. Mahesh Nayak is a chartered accountant at CNK & Associates.
News18
17-07-2025
- Business
- News18
No Tax On Crores? NRIs Are Using This 'Jugaad' To Pay Zero On Capital Gains
Last Updated: NRIs can claim full or partial exemption on LTCG if they reinvest the sale proceeds of foreign currency assets in certain specified Indian investments within 6 months While Non-Resident Indians (NRIs) are very much under the purview of Indian tax laws, many of them have figured out how to legally avoid paying significant chunks of income tax, especially on capital gains. And they're not breaking any rules. Instead, they're using a specific section of the Income Tax Act that allows them to reinvest profits and skip taxes altogether. Let's break down how it works, and why it's perfectly legal. Who Qualifies As NRI? Not everyone living abroad is an NRI for tax purposes. According to Section 6 of the Income Tax Act, a person is considered an NRI if they meet one of these criteria: Spent fewer than 182 days in India during a financial year, or Spent fewer than 60 days in India during the year and less than 365 days over the past four years. There are exceptions. For instance, citizens earning below Rs 15 lakh in India may be allowed up to 120 days instead of 60. And for those leaving India for employment, the 60-day limit goes up to 182 days. Tax Rules: What NRIs Pay, What They Don't What Is Section 115F? This is where things get interesting. NRIs can claim full or partial exemption on LTCG if they reinvest the sale proceeds of foreign currency assets in certain specified Indian investments within six months. A foreign currency asset is simply an asset (like shares or debentures) purchased using convertible foreign exchange. 1. Eligible Reinvestment Options: 2. Not eligible: Mutual funds, real estate, gold, or any asset not listed above. The catch? You must hold the new investment for at least three years. Sell earlier, and the previously exempted capital gains become taxable. Here's How It's Calculated: Let's say an NRI sells equity shares listed in India for Rs 4 crore. The original cost was Rs 2 crore, giving a capital gain of Rs 2 crore. If Rs 3 crore from the total sale proceeds are reinvested in eligible assets: Exempt Gain = (Rs 3 crore / Rs 4 crore) × Rs 2 crore = Rs 1.5 crore Taxable Gain = Rs 50 lakh Tax Saved = Rs 18.75 lakh @ 12.5% LTCG rate Things NRIs Must Remember Six-month window: Reinvestment must happen within 6 months of the sale, and it must be the entire net sale proceeds, not just the capital gain. Stick to eligible assets: Only invest in shares, debentures, public deposits, or government securities. Hold for 3 years: If you sell or convert early, you lose the tax break. Keep your NRI status intact: Also maintain traceable records to prove that the money used for reinvestment came from foreign income. Disclaimer: Comments reflect users' views, not News18's. Please keep discussions respectful and constructive. Abusive, defamatory, or illegal comments will be removed. News18 may disable any comment at its discretion. By posting, you agree to our Terms of Use and Privacy Policy.
