For high-net-worth equity investors in Telangana, capital gains taxation represents one of the most significant drags on portfolio returns. A well-structured tax optimization strategy can meaningfully enhance after-tax wealth creation over the long term, without compromising investment objectives or regulatory compliance.
Understanding the Current Tax Landscape
The Union Budget 2025-26 introduced several refinements to the capital gains tax framework that HNI investors must account for. While the fundamental distinction between short-term and long-term capital gains remains, the nuances of holding periods, indexation benefits, and surcharge applicability require careful attention.
| Asset Class | Holding Period (LTCG) | STCG Rate | LTCG Rate |
|---|---|---|---|
| Listed Equity Shares | 12 months | 20% | 12.5% (above Rs 1.25 lakh) |
| Equity Mutual Funds | 12 months | 20% | 12.5% (above Rs 1.25 lakh) |
| Debt Mutual Funds | 24 months | As per slab | 12.5% |
| Unlisted Shares | 24 months | As per slab | 12.5% |
| Real Estate | 24 months | As per slab | 12.5% |
With the removal of indexation benefits for most asset classes and a simplified 12.5% LTCG rate, the focus of tax planning has shifted towards holding period management and strategic loss harvesting.
Strategy 1: Tax-Loss Harvesting
Tax-loss harvesting involves systematically booking losses on underperforming positions to offset capital gains elsewhere in the portfolio. For HNI investors with diversified equity holdings, this strategy can generate meaningful tax savings on an annual basis.
The key is to execute this strategy methodically rather than reactively. Towards the end of each financial year, we recommend a comprehensive portfolio review to identify positions with unrealized losses that can be crystallized against realized gains. The harvested positions can be repurchased after a reasonable interval to maintain the desired portfolio allocation.
Implementation Considerations
- Short-term losses can be set off against both short-term and long-term capital gains, making them particularly valuable.
- Long-term losses can only be set off against long-term capital gains.
- Unabsorbed losses can be carried forward for up to 8 assessment years, provided returns are filed on time.
- The wash sale concept, while not explicitly codified in Indian tax law, should be approached with prudence to avoid scrutiny.
Strategy 2: Holding Period Optimization
The differential between STCG (20%) and LTCG (12.5%) on listed equities creates a 7.5 percentage point incentive for holding positions beyond 12 months. For large-ticket transactions, this differential can translate into substantial absolute savings.
We recommend maintaining a disciplined tracking system for acquisition dates across all equity holdings. When contemplating exits, even a few weeks of additional holding can shift the tax treatment from STCG to LTCG, saving 7.5% on the gains.
Strategy 3: Grandfathering and Cost Optimization
For investors holding legacy equity positions acquired before January 31, 2018, the grandfathering provision continues to offer significant benefits. The cost of acquisition for LTCG purposes is the higher of the actual cost or the fair market value as on January 31, 2018, subject to the condition that the FMV does not exceed the actual sale price.
Many HNI investors in Telangana hold substantial legacy positions in companies like Asian Paints, HDFC Bank, or Infosys that were acquired at significantly lower prices. Proper documentation and computation of the grandfathered cost base is essential for optimizing the tax outgo on these positions.
Strategy 4: Strategic Use of Family Members' Exemption Limits
The Rs 1.25 lakh annual exemption on LTCG from listed equities applies per individual. For family-oriented wealth structures common in South Indian business families, strategic allocation of equity holdings across family members can multiply the available exemption.
A family of four can collectively enjoy Rs 5 lakh of tax-free LTCG annually from listed equities, translating to a tax saving of Rs 62,500 per year at the 12.5% rate.
Strategy 5: Surcharge Management
For HNI investors, the surcharge on capital gains can significantly increase the effective tax rate. Income exceeding Rs 1 crore attracts a 15% surcharge, while income above Rs 2 crore attracts a 25% surcharge (capped at 15% for equity-related gains).
Timing the realization of capital gains across financial years, where possible, can help manage the surcharge impact. This is particularly relevant for investors planning significant exits from concentrated positions.
The Telangana Advantage
Telangana-based investors benefit from the state's business-friendly environment and the absence of state-level capital gains tax. Additionally, the state's T-Hub and WE-Hub ecosystems have created a vibrant startup environment, offering HNI investors opportunities for tax-efficient investments through Section 54GB (capital gains exemption on investment in eligible startups) and other provisions.
Building a Tax-Efficient Portfolio
Rather than treating tax planning as a year-end exercise, we advocate for embedding tax efficiency into the portfolio construction process itself. This includes:
- Asset location: Placing tax-inefficient assets (high-yield debt, REITs) in tax-advantaged wrappers where possible.
- Turnover management: Minimizing unnecessary portfolio churn that triggers short-term capital gains.
- Systematic profit booking: Gradually booking profits on appreciated positions rather than large one-time exits.
- Dividend vs growth: Choosing growth options in mutual funds to defer tax liability and benefit from compounding.
At Mintra FinServ, our advisory approach integrates tax optimization with broader investment strategy, ensuring that our clients in Telangana and across South India maximize their after-tax wealth creation while remaining fully compliant with all regulatory requirements.