Capital Gains Bonds: A Tax-Saving Option for Shareholders
Tax Planning for Long-Term Capital Gains
The Indian tax system presents various complexities for taxpayers, particularly when dealing with long-term capital gains (LTCG) from listed shares. For individuals with LTCG exceeding Rs 1 lakh, tax planning becomes crucial to minimize tax liability.
Eligibility for Capital Gains Bonds
It is essential to note that the exemption from long-term capital gains by investing in capital gains bonds is available only for LTCG arising from the transfer of land or a building and is not available for the sale of shares. Therefore, individuals with LTCG from share sales must explore alternative tax planning strategies.
Tax Liability on LTCG
An individual's tax liability on LTCG depends on various factors, including their age, residency status, and the amount of LTCG. For the assessment year 2026-2027, if an individual has LTCG of up to Rs 2.50 lakh, they will not have to pay any tax under both old and new tax regimes.
| Age Group | Taxable LTCG | Tax Rate |
|---|---|---|
| Below 60 | Rs 2.40 lakh | 12.50% |
| 60-80 | Rs 1.90 lakh | 12.50% |
| Above 80 | Rs 4.90 lakh | 0% |
Under the old tax regime, an individual over 60 but below 80 will pay tax at a flat rate of 12.50 percent on long-term capital gains of Rs 1.90 lakh beyond Rs 3 lakh of basic exemption. On the other hand, if an individual is over 80, they will not have to pay any tax on the balance of long-term capital gains of Rs 4.90 lakh due to the higher exemption limit of Rs 5 lakh available to them.
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If an individual opts for the new tax regime, they will have the benefit of the basic exemption limit of Rs 4 lakh applicable to all taxpayers, irrespective of their age, and will pay tax only on LTCG of Rs 90,000.
Tax Liability for Non-Residents
In case an individual is a non-resident for tax purposes, they will have to pay tax at 12.5 percent on the whole of the long-term capital gains, as the benefit to set off a shortfall in the basic exemption against long-term capital gains is not available to non-residents, irrespective of their age.
Investor Takeaway
Investors should note that capital gains bonds are not applicable for LTCG arising from the sale of shares.
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