Save Rs 10,000 in long-term capital gains tax on shares every financial year

In a financial year, the first Rs 1 lakh long-term capital gains (LTCG) is exempt. Beyond this amount, LTCG is taxed at 10% without indexation benefit.

Capital Gains

Many people invest in direct equity and equity-oriented mutual funds for long-term financial goals such as accumulating a corpus for a child’s higher education or a retirement fund for themselves. When you invest towards long-term financial goals, you should be aware of the income tax rules so that you can plan better.

In this article, we will understand what is the long-term capital gains tax on shares, how to calculate it, and how to save on this tax.

What is meant by capital gains from shares?

The profit made from selling shares at a higher price than what they were bought for is known as capital gains from shares. The taxation of capital gains on shares depends on the holding period. It can be categorised as follows:

  • Short-term capital gains: When the equity shares are sold in less than 12 months of purchase, the gain in capital is known as short-term capital gains.
  • Long-term capital gains: When the equity shares are sold after 12 months of purchase, the gain in capital is known as long-term capital gains. 

    For example, Kiran bought 250 shares of a BSE-listed company at Rs 800 per share in May 2021. She sold them for Rs 900 per share in July 2022. In this case, Kiran’s profit will be categorised as long-term capital gains as her holding period was more than 12 months.

Long-term capital gains tax on shares

The long-term capital gains tax rate on shares is specified under Section 112A of the Income Tax Act. The section was introduced in the Finance Act 2018. For the application of the section on listed equity shares, the Securities Transaction Tax (STT) should have been paid for the purchase as well as the sale of shares. 

Long-term capital gains tax on shares is charged as follows: The first Rs 1 lakh LTCG in a financial year is exempted from taxation. The incremental LTCG is taxed at 10% without indexation benefit. 

For example, Tina bought 10,000 shares of a listed company from the NSE for Rs 1400 per share in July 2021. She sold the shares for Rs 1450 per share in September 2022. 

In this case, Tina sold the shares after one year, so LTCG tax will apply. She made long-term capital gains of Rs 5 lakh. The first Rs 1 lakh LTCG will be exempt. The remaining Rs 4 lakh LTCG will be taxed at 10% without indexation benefit. Hence, Tina will have to pay an LTCG tax of Rs 40,000.

Also Read: Looking For Ways To Save Tax On Long-Term Capital Gains? Here Are Some Solutions

Tax harvesting to save LTCG tax on shares

Tax harvesting is the strategy of booking LTCG of up to Rs 1 lakh every financial year and reinvesting the sale proceeds. As LTCG up to Rs 1 lakh is exempt, you will not need to pay any LTCG tax. At the same time, you can reinvest the sale proceeds and reset the purchase price at a higher level. 

For example, Anuj bought shares of ABC Limited for Rs 8 lakh in June 2021. In July 2022, the value of his investment had become Rs 8.9 lakh. 

Anuj’s investment is more than 1 year old. He can sell the entire holdings and book an LTCG of Rs 90,000. The LTCG of Rs 90,000 is less than the exempt limit of Rs 1 lakh in a financial year. Hence, Anuj will not have to pay any LTCG tax. 

As a next step, Anuj should reinvest the entire sale proceeds of Rs 8.9 lakh back in the equity shares of ABC Limited. His new purchase price will be reset at a higher level of Rs 8.9 lakh compared to the earlier Rs 8 lakh. His new investment date will be reset to July 2022. 

In this manner, an investor can book LTCG of up to Rs 1 lakh every year and save net LTCG tax of Rs 10,000. Please note that if they fail to reinvest the sale proceeds, they will not benefit from the magic of compounding in future.

Also Read: What Are Tax Gain And Tax Loss Harvesting? How Can They Help You Save LTCG Tax?


Whenever you sell shares and make a profit, take the following steps:

  • Calculate the capital gains applicable
  • Based on the shares’ holding period, work out whether it is short- or long-term capital gains
  • If it is long-term capital gains, calculate the LTCG tax at the rate of 10% on the incremental gain above Rs 1 lakh
  • Pay the appropriate LTCG tax at the time of ITR filing
  • Use tax harvesting every financial year to book LTCG up to Rs 1 lakh and save LTCG tax up to Rs 10,000. Reinvest the entire sale proceeds to reset the purchase price higher.


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