"Minimise the tax on capital gains by investing for long term"

If the exemption is removed, then the payment of tax will be an unavoidable certainty.

I.V. Subramaniam        Print Edition: February, 2010

I.V. Subramaniam
I.V. Subramaniam
The new Direct Taxes Code (DTC) has proposed to do away with the exemption offered to long-term capital gains accrued from equities. If it becomes a law, what strategy should long-term investors adopt to cut tax?
If the exemption is removed, then the payment of tax will be an unavoidable certainty. However, one way to minimise the tax liability would be to reduce the churning of the portfolio and postpone the incidence of tax. This will allow compounding in your portfolio and increase the overall wealth.

If dividend distribution tax is levied on equity dividends as well, what should investors do?
The proposed changes may make the dividends from equity funds taxable. If the income from the dividend option is taxed, it may be prudent to opt for the growth option and defer the tax liability.

Which kind of investors should opt for ELSS funds for tax planning?
Tax planning is meant for everyone. Hence, ELSS funds are an option that should be explored by investors, irrespective of any specific categorisation.

What kind of returns can investors in equity mutual funds expect in 2010?
The performance of the market is linked to economic growth. With India's GDP growth projected at around 6.5 per cent, and inflation between 5-6 per cent, earnings could grow at 13 per cent. If one adds the dividend yield, the returns from stocks could be around 15 per cent. Careful stock-picking may allow the total returns to be higher.

I.V. Subramaniam is Director, Quantum Mutual Fund

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