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LTCG taxation and what does it mean for your investment.

December 17, 2018

Taxation regime in India has always been very elaborate and a detailed affair, with changes coming in every now and then and as per the various requirements of administrative objectives and their fulfillment. As part of the ongoing changes in taxation rules and regulations, the incumbent government introduced new changes in the LTCG (Long Term Capital Gains) taxation system. These changes became applicable from 1^st April, 2018 and included sweeping changes in the way equity market was taxed in India. As per the new applicable rules, the capital gains made through equity-related investment vehicles such as equity based mutual funds etc. will now be taxable at a rate of 10% on the capital gains exceeding Rs 1 Lac in any given financial year. This means that the capital gains lesser than the amount of Rs. 1 Lac in one year will continue to remain tax exempt and therefore for such investors, the state of their investments will continue to be the same. Moreover, the gains made by the investors or subscribers of ELSS (Equity Linked Savings Scheme) have also been brought under the purview of the changed LTCG taxation.

When viewed from the perspective of traditional Indian investors, equity had emerged as one of the most viable instruments of dependable returns, especially because of being eligible for income tax exemption before the current year's budgetary announcements and the relevant decisions taken therein. Although as mentioned, for investors who maintained lower investments on equity or equity liked investment vehicles, not much has changed, however same cannot be said for those who earned stable capital gains by trading in such shares. Investment in mutual funds (equity funds) therefore, no longer enjoys the same tax saving advantages as that in ULIPs (Unit Linked Insurance Plans) for instance. To add to the scenario, it has also been mandated that there will be no benefits of indexation (indexation has been used primarily by investors in availing of the tax related benefits for long term capital gains).

Therefore, in essence, this means that in order to benefit from the upgraded system of taxation, it is always good to have multiple and diverse investment portfolio. One of the best investment plans that you can make for securing your finances and for safeguarding your financial edge is investing in ULIPs. Apart from the benefits over equity-linked schemes when it comes to LTCG taxation, ULIPs offer tax benefits on earnest corpus through fund options and also on payable premiums under Sections 80C and 10D of the Income Tax Act, 1961. ULIPs also allow you to choose from the range of given fund options besides entitling you to a certain number of free switches between fund options, depending on the performance of funds as per market conditions. This not only allows your corpus to grow but also cushions you from the market related risks. Therefore, ULIPs serve as good modes of ensuring that your capital grows over time and you also receive tax benefits for the same.

HDFC Life offers HDFC Life Click to Invest ULIP- an online plan that gives comprehensive, market-related gains and also allows you to save on taxes while enjoying the benefits of a financially stress free life. For details, click on the mentioned link: https://www.hdfclife.com/savings-plans /click-2-invest-ulip-plan.

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Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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