Use these two methods to reduce tax on your capital gains

Use these two methods to deduct tax on your capital gains:

Redeem for reinvestment: Suppose in a particular year, you made ₹4.9 lakh from mutual fund investments of ₹4 million. Now, you redeem the entire amount, and reinvest it. Next year, the total fund becomes ₹5.6 lakh, i.e. gain price ₹70,000

Now, if you had not redeemed and reinvested, the capital gain would be ₹Out of this 1.6 lakh ₹60,000 will be taxable.

The method of redeeming mutual fund investments for reinvesting to reduce taxes is called tax harvesting. However, it is extremely important to reinvest the money immediately. Otherwise, if the money is lying idle in the bank, it will be spent or unfavorably invested, thus the strategy loses its purpose.

Tax Loss Harvesting: Another excellent strategy for reducing taxes, says Amit Trivedi, personal finance coach and author of Riding the Roller Coaster, is through this method, using capital losses in a particular year to adjust taxable capital gains. can go.

Further explaining how the method works, he says, “Suppose that in a year, a person earned a capital gain”. ₹2,50,000 from a particular equity mutual fund investment. and the taxable capital gain for this would be ₹1,50,000.”

“At the same time, they cost the capital loss ₹1,20,000 from another fund in the same year. Then, this loss will be adjusted against the taxable capital gain of ₹1,50,000 from the previous fund.”

Thus a person receives a net capital gain ₹30,000 on which tax will be payable, he added.

Also, the unabsorbed loss for a particular financial year can be carried forward for 8 years to reduce the tax on capital gains in subsequent years also, said Renu Maheshwari, SEBI Registered Investment Advisor, CEO and Principal Advisor at FinzScrolls Renu Maheshwari says

That is, suppose you have made a capital loss of ₹40,000 in 2018, and booked capital gains ₹1.8 lakh in 2020. When calculating taxes for 2020, you can remove ₹to 40,000 ₹1.8 lakh and thus the taxable amount will be ₹40,000.

“This can be done equally in debt and equity funds. It is a good technique to take advantage of market downturn and reduce tax outgo.”

This method can increase the net return on the portfolio. The best part is that even a bad year can add to the value of a portfolio, concludes Maheshwari.