How to save Capital Gain taxes?

Suppose I have earned 25,00,000/- capital gains, is there any tax savings possibilities? Can I invest in any Section 54EC bonds for reducing capital gain liabilities?

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You cannot claim exemption by investing in 54EC bonds because Section 54EC provides exemption on transfer of a land or building or both and investing the sale consideration in specified bonds(NHAI Bonds, RECL Bonds etc.,).

In your case - if the gains are from equity shares and mutual funds; you cannot claim this 54EC exemption.

Further, you can claim exemption under section 54F by investing in a residential house.


@Alok.K.V, Two ways you can save LTCG tax:-

  1. Tax loss harvesting: you book loss and buy those stocks again 2 days later so that the loss can set-off against the gains lowering the tax. Please note, in those two days, the stock price may change. The latest you have to do tax-loss harvesting is 31st March or the last day of March when the stock market is open.

  2. CGAS (Capital Gains Accounts Scheme) under Section 54:

Deduction u/s 54EC is no longer available on LTCG from the sale of equity shares and mutual funds as per the changes in the IT Act post budget 2018.

@GoldenPi you need to correct this on your website. LTCG tax saving section still sells NHAI and REC bonds without mentioning that it is not applicable to LTCG derived from equity sales.

Yes, you can save tax by investing the LTCG in buying a residential property or land.

Alternatively, if you do not wish to immediately invest in a property/ land to take tax exemption under 54F, you park the money in Capital Gains Account Scheme (CGAS) under section 54. There are two types of accounts under CGAS:-

  1. Type A – Savings deposit: You can operate it as a usual savings account and withdraw funds as and when but the funds that are withdrawn have to be used for the purchase of residential property/ land within 60 days of withdrawal else it becomes taxable income.

  2. Type B - Term Deposit: This acts similar to a Fixed Deposit account with a maximum term of 3 years. No premature withdrawal facility is available before the term of deposits mature. After 3 years (or term deposit matures), it can’t be renewed any further. So once the deposits are withdrawn, you have to utilize the money in buying a residential property/ land within 60 days, else the money is considered as income from other sources for that year. Though if you have some business loss in that year, you can set off this gain against that loss of that respective year to lower the tax. While opening Type B Term Deposit account, you can choose whether it would be cumulative (interest is reinvested) or non-cumulative (interest is paid at regular intervals)

The latest you can open this CGAS account in any designated PSU bank is on or before the due date of filing ITR.

So in short, tax-loss harvesting is to settle LTCG within this FY, while CGAS is when you are willing to buy a property within 3 years, or you want to defer your LTCG tax for later (maximum 3 years).

@Quicko let me know if I missed out on anything.