Rs 16L LTCG tax liability: Pay or reinvest money?

These are a set of queries raised by ET Wealth readers, which have been answered by our panel of experts.

I am 57. I recently sold a piece of land near Jewar airport, resulting in a long-term capital gains (LTCG) tax liability of around Rs 16 lakh. I am considering two options: reinvesting the proceeds in another property of a similar value to claim the available tax exemption, or paying the LTCG tax and investing the remaining amount in mid-cap mutual funds to grow the corpus further. Since I already have an adequate retirement corpus, would it make more sense to pay the tax and opt for the second alternative?

Ravi Kumar TV Director, Gaining Ground Investment Services: You should first confirm whether the Rs 16 lakh capital gains tax is correctly calculated and whether you qualify for any available exemption. If saving this tax requires you to invest a much larger amount in another property, the property should make sense as an investment on its own. If you would not buy that property without the tax benefit, it may be better to simply pay the tax and keep the remaining money available for better investment opportunities.

Since your retirement needs are already well taken care of, paying the tax and investing the remaining money for long-term growth makes more sense. But instead of putting the entire amount into mid-cap funds, it would be safer to spread the money across a diversified equity portfolio, with only a part going into mid-caps. The main point is simple, do not make a large investment decision only to save Rs 16 lakh in tax. Choose the option that is likely to give better long-term returns, flexibility and peace of mind.

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Would it be advisable to sell long-term equity holdings worth Rs 10 lakh, currently showing an overall gain of 56%? I am adequately invested in equities through mutual funds (60% of my portfolio). My objective is to utilise the carry-forward long-term capital loss of Rs 4.75 lakh from a property sale in 2022 through tax-gain harvesting. If I do sell, where should I reinvest the proceeds?

Rushabh Desai Founder, Rupee With Rushabh Investment Services: Tax-gain harvesting is a smart move. Since you don’t need liquidity, executing this trade allows you to reset the cost basis of your investments completely tax-free. Long-term capital loss (LTCL) incurred from the sale of immovable property can be set off against long-term capital gains (LTCG) from equity shares or equity mutual funds. On your holding of Rs 10 lakh with an overall gain of 56%, the original cost comes to ~Rs 6.41 lakh and LTCG comes to ~Rs 3.59 lakh.

With the property LTCL at Rs 4.75 lakh, your tax due becomes nil. You still have ~Rs 1.16 lakh of property LTCL remaining, which you can carry forward and set off in future years (8-year limit). Depending on your overall portfolio goals, risk appetite, and time horizon, here are two practical routes for your investment. Option 1: rebalance into fixed income/debt products like bank fixed deposits and/or high-quality corporate bond debt funds to reduce portfolio volatility. Option 2: reset your equity cost basis and reinvest directly back into your core equity mutual funds to maintain your long-term equity strategy.

Our panel of experts will answer questions related to any aspect of personal finance. If you have a query, mail it to us right away. Email ID: etwealth@timesgroup.com