Are taxes eroding your wealth? Here’s how to protect it.

Podcast Duration: 05:28

Hi friends and welcome to this podcast by Angel Broking.

Doston, if you have already started on your path to earning money in your adult life, toh aapne taxes ke mudde par zaroor kuch thought diya hoga. Am i right?

Jab novice investors aur traders earn karna shuru karte hain, toh they realize ki tax planning wealth building ka utna hi crucial component hai, jitna money earn karna.

In fact, kuch logon ke liye toh taxes become the difference between earning a good amount of money, and saving it to build wealth in the long term. Actually, wealth build karne mein aapko long term focus rakhna zaroori hai, and tax planning is essentially a crucial component of wealth building.

When people trading in the stock market start making positive earnings, toh unki earnings become subject to what is known as capital gains tax under our tax regime.

Capital gains par jo tax applicable hota hai, woh 2 types mein classify hota hai - long term capital gains tax, aur short term capital gains tax. Are you feeling confused? Toh check out this story, or rather, a conversation between Ziya and Sharad.

Ziya ne recently mutual funds mein invest karna start kiya tha. Ziya actually equity aur forex trading karti hai, And she was approaching the end of the first year of her financial journey. Waise toh Ziya made some handsome earnings on her trades, usko tax filing procedures aur rules ke baare mein zyada idea nahi tha.

Lockdown ke start hone ke baad se she started living with her parents. Aur usko market se jo bhi extra earnings hote, usko Ziya ne mutual funds mein invest karna shuru kar diya - that’s right, beyond her capital amount, Ziya invested ALL of her extra earnings into mutual funds.

When the time came to file her tax returns, she decided to take some guidance from her friend Sharad, who had been trading and investing since the last five years. Before going to file her taxes, Ziya ne mutual funds se apne investments divest karke ek IPO ke shares khareedne mein use kar liye.

When Sharad got to know about this, he told Ziya ki this move was not a very good idea.

Doston do you know why Sharad didn’t think of this as a good idea?

Short aur long term capital gains can be a tricky slope to navigate for novice investors.

Fir Sharad ne Ziya ko explain karna shuru kiya.

In the meanwhile, let’s explore some nuances of taxes levied on capital gains.

Jab aap recognized brokers ke through buy and sell orders place karte ho, toh your transactions also entail what is called the securities transaction tax, ya fir, STT. Agar aapke transactions ke dauraan STT already debit ho gaya hai, toh your securities fall under STT paid holdings.

Here is the interesting part - agar aap in securities ko ek saal se kam ke period ke liye hold karte ho, toh your capital gains are taxed at 15%. Sounds like a hefty amount, right?

On the other hand, if you hold your STT paid securities for longer than a year, and upto three years, your capital gains are exempted from tax as per section 10 of the Income tax act.

However, under the scheme , your long term capital gains are exempt from tax only if your extra earnings are less than 1 lakhs.

Toh doston, this was the reason why Sharad told Ziya ki usko mutual funds ke investment ko hold karke rakhna tha.

This is just one way of saving taxes on your capital gains.

Take another example - do you know what ELSS mutual funds are?

ELSS actually stands for Equity Linked Saving Schemes. These are not only good investment vehicles on their own, but also a good way to save some of your hard earned money from being taxed at a hefty rate. ELSS mein you can invest upto rs 1.5 lakhs and these funds will be exempt from tax under section 80C of the income tax act. Sounds insightful, doesn’t it?

Doston long term capital gains kewal equity par apply nahi hote. In fact, agar aapne real estate mein invest kiya hai in the hopes of making some money by selling it - especially residential property, toh the extra earnings you earn in this process will also be subject to long term capital gains tax.

Agar aap koi residential property ko 2 saal hold karke sell kar dete ho, to, aapko in extra earnings, or rather, capital gains par 20.8% tax pay karna padta hai.

Agar aap is property ko do saal ke andar sell kar dete ho, toh the extra earnings on this kind of transaction will be treated as short term capital gains. In case you cannot save the tax on your gains.

Lekin in the previous case - if you hold the property for more than two years and then sell it, toh you can save tax on your gains by buying another residential property within the next two years. Interesting, right?

Doston taxes save karne ke kai tareeke hote hain, and that is exactly why good tax planning via tax saving schemes can help you preserve your earnings and build wealth in the long term.

Ziya ke case mein, the IPO investment paid off well, and offset her capital gains tax amount.

If you haven’t started doing your tax planning, now is always the right time to start paying attention. If you want to know about more ways of saving taxes on your earnings, check out our other podcasts or visit www.angelbroking.com to learn more!

Until then, goodbye from angel broking, and we wish you good luck in building your wealth!