Mumbai, Sept. 9 -- Nearly 73% of taxpayers have already opted for the New Tax Regime, according to the latest available data from a finance ministry press release in August 2024. For most salaried individuals, tax planning-until recently-meant making last minute investments to claim benefits under Section 80C. With the New Tax Regime now the choice of a majority of salaried tax payers, this kind of tax planning is no longer a priority. Instead, with fewer tax payers looking at maximising tax savings under their income tax, it might be time to look at tax saving more comprehensively. Additionally, as more individuals invest in market-linked assets, tax efficiency in capital gains is becoming increasingly important. Understanding available exemptions, knowing the rules for short and long-term capital gains, and reinvesting smartly when selling a house property are some of the ways investors can improve tax efficiency-provided they understand the applicable provisions. All capital gains are not taxed in the same way. The time at which you sell an asset can determine how much tax you pay (see table 1). For example, selling equity within 12 months of purchase results in short-term capital gains that are taxed at 20%. If you sell after 12 months, the gains are treated long-term and taxed at 12.5%. That's a saving of 7.5 percentage points or Rs.7,500 on a Rs.1 lakh capital gain. The relevant period is different for unlisted equity, debt assets, property and gold. Gains on these assets are treated as short-term if the asset is sold within 24 months of purchase and are taxed at the applicable income tax slab rate. Gains from assets held for more than 24 months are treated as long-term and taxed at 12.5%. Capital gains tax calculations can become more complicated if you also invest directly in overseas assets. According to CA Parag Jain, tax head, 1 Finance, "Some of our clients get a salary from outside India and even invest in overseas equity. For US-listed shares in India, the holding period for long-term treatment is 24 months, not 12, because foreign shares fall outside the listed-securities category. This is where our tax computation on their overall income often varies from expectations." Tax harvesting is a strategy to manage capital gains tax by selling securities strategically. It has two components. The first is to sell investments that are currently at a loss, realise those losses and offset them against capital gains from profitable investments. This can reduce your overall tax liability. The second is to sell profitable investments up to your annual tax-free exemption limit. The Income Tax Act allows tax exemption on long-term capital gains of up to Rs.1.25 lakh from sale of listed equity assets such as stocks or mutual fund units. Which means if you have held these units or stocks for more than 12 months and then sell them, any gains up to Rs.1.25 lakh will not be taxed. "If you are sitting on significant gains beyond a 12-month holding period, the shares or mutual fund units can be sold and gains booked-up to Rs.1.25 lakh is exempt from tax. You can then reinvest immediately back in equity. Doing this optimises both returns and taxation. Your future gains are also reset as the cost base when you reinvest shifts higher, thereby reducing capital gains tax if you sell later," says Jain. Both strategies can help you manage capital gains tax efficiently. "The majority of our customers don't understand or aren't aware of tax harvesting. The complexity in calculating and executing the strategy may be why it's not used much, especially by DIY investors. One can use the exemption with some prior planning and if a financial goal is coming up in the next few months, the redeemed funds can be set aside to cater for that too," says Rohit Tuteja, co-founder and CEO, Finny.club, an AI first, SEBI registered investment advisory platform. According to Section 54 of the IT Act 1961 (renumbered in the new IT Act), taxpayers can save tax on capital gains from the sale of a residential property if the profits are reinvested in another residential property-ready or under construction-or in specified bonds under Section 54EC. But this provision comes with conditions. If you are unaware of these conditions, your exemption could even be reversed. "You must reinvest the proceeds of a sale into another residential property either up to a year before or two years after the sale or into specified eligible bonds within six months of the sale. If you are unable to reinvest in another property before filing returns for the year, you can deposit your uninvested funds for a temporary exemption (Capital Gains Account Scheme). However, if you don't reinvest within the given time frame, the exemption can be reversed and you will not get the benefit of saving on taxes," Jain said. There are a few other conditions to keep in mind. The property being sold must have been held for at least 24 months for the gains to qualify as long-term capital gains. If you are buying a house that's under construction or constructing one then it should be completed within three years of selling the previous property. The maximum tax exemption available on reinvestment in a house property is capped at Rs.10 crore. For 54 EC bonds, there is an upper limit on investment of up to Rs.50 lakh a year. Keeping in mind these provisions can help investors optimise tax efficiency on sales of a property. Advance tax is paid by salaried professionals and freelancers on their additional income from rent or interest or dividend or capital gains, when tax deducted at source hasn't been paid or that value is insufficient to cover the tax liability. If any of these capital gains are realised midyear, you are required to pay advance tax before your tax return filing date, failing which you may be charged 1% per month as interest for non-payment. "When we did tax filing for our customers last year, the amount to be paid individually in interest or penalty to the IT Department was in the range of Rs.40,000 to Rs.3.6 lakh. It's hard for individuals to know all the details that are needed to accurately file taxes. The financial models we run pull data from account aggregators and other financial intermediaries to calculate tax liability in real time and then we inform the customer using AI," says Tuteja. Last year when they began to offer the service, many new customers who signed up had gaps in their tax filing which resulted in penalties. Experts agree that tax awareness remains low and retail investors often avoid capital gains planning because of its perceived complexity. "After all, why would you forgo nearly Rs.16,000 from claiming the tax exemption-up to Rs.1.25 lakh-on equity capital gains when you can? It doesn't take away from long-term investment planning in any way," says Tuteja....