How to Save Tax This Financial Year From Stock Market

Did you sell capital assets which are making a profit? Then it will result in taxation on those profits as capital gains. There is a way to avoid these taxes by investing the profits into specific assets. This is typically known as Capital gains exemption.

1. What is Tax Loss Harvesting?

Tax Loss Harvesting is an activity which involves activities like selling assets which are in loss to nullify the capital gain earned in profitable assets

How Can Someone Use this Technique?

1. Analyse your complete portfolio, in which you will check the underperforming assets in losses since purchasing or in a bearish trend i.e., a downtrend. The portfolio might include stocks, bonds, mutual funds, and corporate FDs,etc.
2. Sell these underperforming assets to realise the ongoing capital loss, which will help to nullify the capital gain.
3. We can use this realised capital loss against the capital gain to reduce the taxes we have to pay on realised capital gains. We can carry these capital losses for up to 8 years if the losses surpass the profits.
4. Saved money after Tax Loss Harvesting, you can use it to reinvest in lucrative assets to churn and grow your portfolio.

2. ELSS

ELSS (Equity Linked Saving Scheme) is a type of Mutual Fund with income tax deductions. Income Tax Act, 1961 Section 80C allows you to save up to ₹ 1.5 lakhs a year in taxes by investing in ELSS. However, you can invest more than ₹ 1.5 lakhs, but the excess will not allow you to avail the tax benefits as per the provisions of Section 80C.

Traditional tax-saving instruments typically offer fixed returns and do not consider the high inflation prevalent in an economy like ours. For example, assuming a 6% inflation rate, investments with fixed returns promise a return of 8%, in this case, your real return would be merely 2%.

On the other hand, ELSS mutual funds can generate higher inflation-adjusted returns over a longer timeframe as it is an equities-focused fund. ELSS helps us to set off the short-term volatility associated with equities when invested for the long term. Since professionals manage these funds, you can handle timing the market.

Read the full blog – How Trading in Stock Can Boost Your Investment Skills?

3. Health Insurance

Section 80D of the Income Tax Act, 1961 offers a deduction for money spent on health insurance and maintaining your health. All health insurance plans can be claimed for the deduction under Section 80D. The maximum cumulative 80D medi-claim deduction limit is ₹ 1 lakh. The deduction can be claimed for health insurance bought for self, spouse, dependent children and parents.

Insured	Amount of Deduction (in Rs)
	Age Below 60 years	Age Above 60 years
Self, Children, Spouse	25,000	50,000
Parents	25,000	50,000
Max Deduction	50,000	1,00,000
Preventive Healthcare	5,000	5,000

4. Section 54 F – Buying Residential Property

Under Section 54 of the Income Tax Act, if you use the sale amount of your other capital assets, including shares (both listed and unlisted), mutual funds and gold, to buy a residential property, the long-term capital gains made on the given asset will be exempt from tax. This tax exemption is available under section 54F.

• An asset must be classified as a long-term capital asset.
• The new residential house should be in India. The seller cannot buy a residential house abroad and claim this exemption.
• The capital gains tax exemption under Sections 54 to 54F will be constrained to Rs.10 crore. Earlier, there was no threshold.

The above conditions are cumulative. Hence, even if one condition is not fulfilled, the seller cannot avail the benefit of the exemption under Section 54.

5. SEC 54 EC – Capital Gains Bonds

1. When anyone sells Real-estate property (land or building) after a long duration, they can avail of capital gain exemption under Section 54EC by investing in certain bonds.Section 54EC bonds are Capital gain bonds which are fixed-income instruments that provide capital gains tax exemption to the investors.The taxpayer must follow the following conditions to be eligible for Section 54 EC exemption:
   • Section 54EC can be claimed by any individuals, Hindu Undivided Families (HUFs), and companies.
   • The asset being sold should be a Long Term Capital Asset, including land, building, or both. The asset is considered long-term if the taxpayer has held it for a minimum of 2 years before the sale.
   • The taxpayer has the compulsion to invest the Capital Gains within 6 months from the date of the property transfer to avail exemption
   The investment should be made in 54EC bonds:
   1. National Highways Authority of India (NHAI).
   2. Rural Electrification Corporation (REC).
   3. Power Finance Corporation Limited (PFC) bonds.
   4. Indian Railway Finance Corporation (IRFC) Limited bonds.
   The total investment amount should not be more than INR 50 lakhs during the current and subsequent financial years.

Final Words

All these options are just advice. We recommend you to get advice from WealthNote for a registered tax advisor so they can help you save tax in a proper manner. For tax saving investments you can contact us on 7066666464 or email us on info@wealthnote.in.