Tax is the single most preventable wealth leak in personal investing. Two investors with identical gross returns can end up with portfolios that differ by 20-30% over a decade purely because of tax handling. This chapter covers the basics — full detail is in our Tax Planning 101 course.

What is a capital gain?

A capital gain is profit from selling an asset (stock, mutual fund, gold, real estate) at a price higher than your cost. Two flavours:

• Short-term capital gain (STCG): Sold within a "short" holding period.
• Long-term capital gain (LTCG): Sold after the long-term threshold.

The threshold and tax rate differ by asset class.

Equity (listed stocks and equity mutual funds)

• STCG (held ≤ 12 months): Taxed at 20% (raised from 15% in the July 2024 Budget).
• LTCG (held > 12 months): First ₹1.25 lakh exempt per financial year. Above that, taxed at 12.5% (raised from 10%, exemption raised from ₹1 lakh, in the July 2024 Budget).
• STT must have been paid for the preferential rates to apply — true for all NSE/BSE trades.

Debt mutual funds

After the April 2023 amendment, debt funds purchased on or after 1 April 2023 lose LTCG benefit entirely. All gains, regardless of holding period, are added to your income and taxed at slab rate. For funds purchased before 1 April 2023, the older indexation rules continue.

Gold

• Physical gold and gold ETFs: LTCG threshold is 24 months. LTCG at 12.5% without indexation (post July 2024).
• Sovereign Gold Bonds (SGBs): Capital gains on redemption at maturity are fully tax-exempt. Sold on exchange before maturity? Treated like gold ETFs.

Real estate

• STCG (≤ 24 months): Slab rate.
• LTCG (> 24 months): 12.5% without indexation for properties bought after 23 July 2024. Older properties have a grandfathering choice (12.5% no-indexation or 20% with indexation, whichever is lower).

Two tax-planning ideas every investor should know

1. Harvest your ₹1.25 lakh equity LTCG exemption every year. If you have unrealised equity gains, sell enough to realise ₹1.25 lakh of LTCG, then buy back the same units. The tax on this is zero, and your cost base resets higher. Over 10 years, this saves significant tax. We have a dedicated LTCG ledger tool for this.

2. Tax-loss harvesting (TLH). If you have losses in some holdings, realise them to offset gains elsewhere. STCL can offset STCG and LTCG. LTCL can only offset LTCG. Losses can be carried forward for 8 years.

Tax on dividends

Since FY21, dividends are taxable at slab rate in the recipient's hands. The 10% TDS kicks in if total dividend per company exceeds ₹5,000 in a year.

What gets reported in your ITR?

Capital gains, dividends, and interest from FDs and bonds all show up automatically in the Annual Information Statement (AIS) and 26AS. Mismatches between your ITR and AIS trigger notices. Always reconcile before filing.

For the full deep-dive — slabs, 80C, 80D, ITR forms, NRI specifics — see the Tax Planning 101 course.

Final chapter: the mistakes that destroy more wealth than markets ever do.