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Sold Shares and Made a Profit - What are my tax implications?

Ramalingam

Ramalingam Kalirajan  |8270 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Aug 28, 2024

Ramalingam Kalirajan has over 23 years of experience in mutual funds and financial planning.
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more
vinod Question by vinod on Aug 23, 2024Hindi
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hello sir, recently i have sold some of my shares and make profit about Rs 40k . plz guide me about my tax implications.

Ans: When you sell shares and make a profit, the tax implications depend on the holding period and the type of capital gain—long-term or short-term. Here's how the tax will be calculated based on your Rs 40,000 profit:

1. Determine the Holding Period:
Short-Term Capital Gains (STCG): If the shares were held for less than 12 months before selling, the profit is considered short-term.
Long-Term Capital Gains (LTCG): If the shares were held for more than 12 months, the profit is considered long-term.
2. Tax on Short-Term Capital Gains (STCG):
Tax Rate: STCG on the sale of shares is taxed at 20% plus applicable surcharge and cess.

Your Situation: If your Rs 40,000 profit is short-term, it will be taxed at 20%.

Example Calculation:

Tax on STCG = 20% of Rs 40,000 = Rs 8,000
Add surcharge and cess as applicable to arrive at the final tax payable.
3. Tax on Long-Term Capital Gains (LTCG):
Exemption Limit: The first Rs 1.25 lakh of LTCG in a financial year is tax-free.

New Rule (12.5% on gains above Rs 1.25 lakh): If your total LTCG exceeds Rs 1.25 lakh, the amount above Rs 1.25 lakh will be taxed at 12.5%.

Your Situation:

If your Rs 40,000 profit is long-term and your total LTCG for the year is within Rs 1.25 lakh, no tax will be due on this profit.
If your total LTCG exceeds Rs 1.25 lakh, then the amount above Rs 1.25 lakh will be taxed at 12.5%.
4. Filing Tax Returns:
Include the Gains: You need to declare these capital gains when filing your income tax return.
Pay the Tax: Ensure that you pay any applicable tax before filing your return to avoid penalties.
Final Insights:
Whether your Rs 40,000 profit is short-term or long-term, understanding the holding period and applying the correct tax rate is essential. If your gains fall under LTCG and your total gains for the year exceed Rs 1.25 lakh, be prepared to pay the 12.5% tax on the excess amount.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
Asked on - Aug 29, 2024 | Answered on Aug 29, 2024
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THKANKS FOR UR ADVICE
Ans: You're welcome! If you have any more questions or need further assistance, feel free to ask. Best wishes on your financial journey!

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.
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Ramalingam

Ramalingam Kalirajan  |8270 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Apr 22, 2025

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Sir, I am 45 years old and want to invest in equity mutual funds. I have time horizon of 10 years . Can you suggest me some good funds in large cap category, IT sector theme fund, 1 or 2 small/midcap funds or any other fund you think would be good for long term. I want to start SIP of Rs 40000/- across 4 mutual funds.
Ans: Your intent to invest Rs 40,000 per month in equity mutual funds for 10 years is a strong move.

Your fund choices across large-cap, IT sector, and mid/small-cap categories are sensible.

Let’s look at how to structure this investment efficiently.

Investment Objective Assessment

You have a long-term vision.

Ten years is a healthy horizon for equity.

SIP is the right approach.

Rs 40,000 monthly is a good contribution.

Your Ideal Asset Allocation Strategy

Diversify across categories.

Blend large-cap, sectoral, and mid/small-cap funds.

Avoid putting too much in one theme.

This lowers risk and boosts consistency.

Large-Cap Mutual Fund (Rs 14,000/month)

These funds invest in stable, top companies.

Ideal for long-term wealth growth.

Less volatile than mid/small-cap funds.

Good for capital preservation with growth.

IT Sector Fund (Rs 6,000/month)

IT sector can give high returns.

But it’s highly cyclical and sector-dependent.

Limit allocation to protect from volatility.

Use as a return booster, not a core.

Mid and Small-Cap Funds (Rs 14,000/month)

These funds carry high growth potential.

But they are more volatile and risky.

Suitable for your long-term horizon.

Split the allocation between mid and small caps.

Keep an eye on market trends regularly.

Flexi Cap or Multi Cap Fund (Rs 6,000/month)

This gives you market-wide exposure.

Fund manager picks across market segments.

Offers balance and flexibility in returns.

Helps when market cycles shift.

Avoid Direct Mutual Funds for Long-Term SIPs

Direct funds miss advisor insights.

You might make emotional, untimely exits.

They lack personalisation and professional guidance.

Regular plans via a CFP-MFD give strategy support.

Expert monitoring helps long-term discipline.

Stay Away from Index Funds

Index funds don’t beat the market.

They lack fund manager expertise.

No downside protection in falling markets.

Actively managed funds aim to outperform indices.

They adapt during market changes.

Review Your Plan Regularly

Review performance every year.

Rebalance based on life changes.

Switch underperforming funds if needed.

A Certified Financial Planner will guide you.

Monitoring is as important as starting.

Taxation Aspects You Must Know

Equity mutual funds have two tax rules.

Long-term gains above Rs 1.25 lakh: taxed at 12.5%.

Short-term gains: taxed at 20%.

Holding for 10 years is tax efficient.

Stay invested to maximise post-tax returns.

Emergency Fund Planning Before SIPs

Keep at least 6 months of expenses saved.

Don’t invest this in mutual funds.

Use liquid funds or bank deposits.

This protects your SIPs during emergencies.

Systematic Withdrawal Plan Later

After 10 years, use SWP for income.

It gives tax-efficient regular withdrawals.

Avoid lump sum exits.

Plan withdrawal strategy 1-2 years before maturity.

Should You Include Sectoral Funds Beyond IT?

Sectoral funds are risky.

Don’t add too many of them.

You already plan IT sector exposure.

Focus more on diversified equity.

This improves overall stability.

Insurance and Health Coverage Are Essential

Review your term plan now.

Make sure it covers all your liabilities.

Have health cover for your family.

Don’t rely only on employer policy.

Your SIP Distribution Suggestion (Rs 40,000)

Large Cap Fund: Rs 14,000

IT Sector Fund: Rs 6,000

Mid Cap Fund: Rs 7,000

Small Cap Fund: Rs 7,000

Flexi or Multi Cap Fund: Rs 6,000

Strategy to Add More SIPs Yearly

Increase SIP by 10% annually.

This boosts compounding significantly.

You’ll reach bigger goals faster.

Link SIP increase to your salary hike.

Final Insights

Your investment plan is smart and timely.

Your SIP amount and time horizon are ideal.

Diversify smartly across fund types.

Avoid direct plans; take regular funds via CFP.

Stay away from index funds and too many sector bets.

Review your plan yearly with your Certified Financial Planner.

Tax efficiency and goal focus are key to success.

Your long-term wealth is built step by step.

A clear path and steady discipline will help you achieve it.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

...Read more

DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Investment in securities market are subject to market risks. Read all the related document carefully before investing. The securities quoted are for illustration only and are not recommendatory. Users are advised to pursue the information provided by the rediffGURU only as a source of information and as a point of reference and to rely on their own judgement when making a decision. RediffGURUS is an intermediary as per India's Information Technology Act.

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