The markets have been in a downward spiral since the proposed reintroduction of the long-term capital gains
(LTCG) tax in the Union Budget.
However, there are about 143 stocks that are currently trading above their base price (intra-day high of January 31). Long-term investors holding shares of these companies can minimise their capital gains tax outgo by booking profits on Wednesday, the last trading day of the current financial year. Starting April 1, LTCG
— gains made on sale of equity shares
held over a period of more than 12 months — will be taxed at 10 per cent.
Booking profits before the LTCG
tax comes into effect will result in zero tax outgo. Moreover, these shares can be repurchased again, making the current price the base instead of the January 31 price. For instance, for an investor holding 1,000 shares of Venky’s India bought for Rs 100 five years ago, the capital gains will be grandfathered till January 31 when the stock was quoting at Rs 2,707. Since then, the shares of the poultry firm have risen 43 per cent.
By selling and repurchasing shares now, the base price will be the current Rs 3,883 and not the January 31 price. Besides Venky’s, there are over two dozen companies whose shares have rallied more than 15 per cent since January 31, where investors can save the tax outgo by booking profits.
“The tax savings could be huge for those holding large quantities of shares. If the difference between the current price and the January 31 price is too narrow, investors are better off holding the stock. However, if the shares have rallied more than 10 per cent, investors can choose to minimise their tax outgo,” said the head of a domestic brokerage.
However, investors will have to be mindful of the transaction charges. Typically, investors have to pay brokerage between 0.25 per cent and 0.75 per cent on the trade value. Additionally, there are other levies such as the securities transaction tax
(STT) and stamp duty.
Investors will also have to factor in market volatility. “Given the weak market trend, it is likely that investors will get to buy some of these stocks cheaper. However, those planning to use this strategy should not look at timing the market. Instead, they should immediately plan to re-buy the same stock if they are bullish about its long-term prospects,” said a market expert.
Investors planning to execute the strategy have to ensure they have held the shares for over 12 months, else they will be subject to the short-term capital gains tax of 15 per cent.