For any smart investor, it is crucial to focus on maximising tax savings and investing in the appropriate mutual fund scheme that would help to create wealth through the power of compounding in the long run.
Focus on long-term capital gains (LTCGs): In case the holding period of an equity mutual fund is up to or less than a year, it is then taxed as short-term capital gains (STCGs) at a flat rate of 15%.
On the other hand, if the holding period of an equity mutual fund is over a year, the sale of such funds would be referred to as long-term capital gains (LTCGs). LTCGs of up to Rs 1 lakh are exempt from tax. However, any gains of more than Rs 1 lakh per annum invite tax at the rate of 10%, minus any indexation benefits.
Understanding the tax-loss harvesting process: It is a practice that relates to selling of stocks that have incurred loss in order to reduce or offset capital gains such as LTCGs or STCGs income subject to taxation. This involves strategically zeroing in on the losses in an effort to reduce the typical taxable income.
Go in for tax-efficient investments: Be on the lookout for investment tools or assets having a low turnover price, considering buying for and selling within a mutual fund could generate taxation liabilities.
The tax bill could be suitably taken care of if an investor is well-versed with the tax implications on the mutual fund selection process.
Park the money in tax-saving funds: An amount of Rs 1.5 lakh per annum can be claimed as tax deductions while investing in tax-saving schemes or funds. For instance, investing in an equity-linked saving scheme (ELSS) can help in claiming tax deductions under Section 80C of the Income-tax Act (ITA), 1961.
In addition, maximising contributions to the National Pension System (NPS), which is known to provide market-linked returns like mutual funds, can also prove to be fruitful. Also, seek out help from a professional financial advisor to ward off confusion in this regard.
Rajiv is an independent editorial consultant for the last decade. Prior to this, he worked as a full-time journalist associated with various prominent print media houses. In his spare time, he loves to paint on canvas.