If you’ve made long-term capital gains (LTCG) this year and want to cut down your tax bill, the good news is—you have options. By planning smartly and investing in certain assets, you can save a good chunk of that tax.
Common investments like equity shares and mutual funds often give better returns than traditional fixed deposits. But since the 2018 budget changes, LTCG above ₹1 lakh from shares, stocks, and mutual funds is taxed at 10%. This applies to sales or redemptions after 31 March 2018. That’s why a bit of tax planning can make a big difference.
What is Capital Gains Tax?
Capital gains tax is what you pay when you sell something for more than you bought it for. These “capital assets” can be anything—land, houses, vehicles, jewellery, stocks, or shares.
There are two types:
- Short-Term Capital Gains (STCG) – When you sell an asset within a short time:
- Up to 36 months for most assets (reduced to 24 months for unlisted shares and immovable property like land and buildings).
- Only 12 months for listed equity shares, equity mutual funds, and UTI units.
- Long-Term Capital Gains (LTCG) – When you hold the asset longer than the above periods.
From FY 2024–25, there are only two holding periods:- 12 months for all listed securities.
- 24 months for all other assets.
Also Read: How to Use Moving Averages to Time Your Trades
Ways to Save Long-Term Capital Gains Tax
The Income Tax Act gives you certain exemptions if you reinvest your gains in specific assets. Let’s look at the main ones.
1. Sell a House and Buy Another (Section 54)
If you sell a residential property you’ve owned for more than 2 years, you can avoid LTCG tax by reinvesting the gains in another house.
Rules:
- Buy the new house 1 year before or within 2 years after selling the old one.
- If you’re building, finish it within 3 years of selling.
- You can claim exemption up to the lower of:
- The actual capital gains, or
- The cost of the new house.
Example:
You sell a house for ₹42 lakh that you bought for ₹20 lakh. Your gain is ₹22 lakh. If you buy another house costing ₹22 lakh or more, you won’t pay LTCG tax.
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Conditions:
- Usually applies to 1 house only, but if your capital gains are up to ₹2 crore, you can claim for 2 houses (only once in a lifetime).
- The house must be in India.
- Don’t sell the new house within 3 years, or you’ll lose the exemption.
- Max exemption: ₹10 crore (any gains above that are taxable).
2. Sell Other Assets and Buy a House (Section 54F)
If you sell any long-term asset (like land, stocks, jewellery) and reinvest the entire sale proceeds in a new house, you can claim exemption.
Rules:
- Buy within 1 year before or 2 years after the sale.
- If building, complete within 3 years.
- You must invest the full sale proceeds (not just the gains) for full exemption.
Formula if partial investment:Exempt Capital Gains = Capital Gains × (Cost of New House ÷ Sale Proceeds)
Conditions:
- Only for 1 house.
- Max limit based on investment of ₹10 crore sale proceeds.
- You shouldn’t already own more than 1 house.
- Lock-in of 3 years.
3. Invest in Government Bonds (Section 54EC)
If you don’t want to buy property, you can invest your capital gains in notified government bonds (like REC or NHAI bonds).
Rules:
- Invest within 6 months of the sale.
- Max investment: ₹50 lakh.
- Lock-in: 5 years (can’t sell or take loans against these bonds before that).
- Interest rate: ~5.25% (taxable).
Also Read: How Do Stop-Loss Orders Protect Your Trades?
4. Capital Gains Account Scheme (CGAS)
If you haven’t yet decided where to invest before your income tax return deadline, deposit your gains in a CGAS account in a public-sector bank.
Rules:
- Use the funds within:
- 2 years (for buying a house) or
- 3 years (for building a house).
- If not used within the time limit, the gains will be taxed later.
✅ Quick Recap Table
| Section | Asset Sold | Where to Reinvest | Time Limit | Max Limit |
|---|---|---|---|---|
| 54 | Residential Property | New Residential Property | 1 yr before / 2 yrs after (3 yrs if building) | ₹10 crore |
| 54F | Any Long-Term Asset (not house) | New Residential Property | Same as Section 54 | ₹10 crore sale proceeds |
| 54EC | Any Long-Term Asset | Govt Bonds (REC/NHAI) | Within 6 months | ₹50 lakh |
| CGAS | Any LTCG | CGAS Account (for property investment) | Before ITR deadline | — |
If you want, I can now rewrite this into a short, story-style explanation so it reads almost like a casual financial guide you’d find in a blog. That would make it even more enjoyable and reader-friendly.
Do you want me to do that next?
