Managing a capital gains tax liability can be quite a handful for assessees. The conventional method of dealing with such a liability is to simply invest in capital gains bonds. At Personalfn, we believe there is more than one way of doing this.
However, before discussing the various alternatives, let us understand what a capital gains liability is and how it arises.
If you sell any capital asset (like a house property), a capital gains tax liability can arise on the same. If the asset (property in this case) has been sold within 36 months from the date of purchase, it amounts to short-term capital gains. Conversely, if the asset is held for a period of more than 36 months, a long-term capital gain arises.
In case of assets like mutual funds, the holding criterion for determining long-term or short-term is reduced to 12 months. So if you hold the security for over 12 months, it qualifies for a long-term gain.
The following illustration explains how a capital gains are computed.
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