A reader asks, “Can you please write an article on when an investor should capital gains tax after redeeming from mutual funds or shares? That is, which time of the financial year. Should I pay the tax immediately or can I pay in March of each financial year?”
The short answer to this question is if you are a salaried person and most of your income tax liability is from the salary for which TDS is duly deducted by your employer it is good practice to pay the advance tax associated with the capital gain immediately after the redemption amount hits your bank account.
If you are a business person or a professional used to paying advance tax four times a financial year (or more!) then you can wait until the next advance tax deadline (not any longer) to pay the necessary capital gain tax. Let us discuss why this is so.
Any taxpayer with a tax liability of more than Rs. 10,000 per FY should pay advance tax. Only senior citizens who do not have an income from a business or profession are exempt from this. For salaried taxpayers, the employer takes care of advance tax payments.
However, if they have income from other sources or capital gains that are significant, then they must ensure advance tax payment norms are met.
- On or before 15th June 15% of total tax liability.
- On or before 15th September 45% of total tax liability.*
- On or before 15th December 75% of total tax liability*.
- On or before 15th March 100% of total tax liability*.
* excluding amt already paid.
Suppose there is a significant additional income via capital gains or other sources between June 16th to Sept 15th of a financial year. Then the total tax liability (tax from these sources + salary) should be computed. Out of this amount, 45% should be paid as advance tax after deducting the amount deducted so far.
If we delay paying the additional tax due to CG and other sources, then we may need to pay interest at the rate of 1% per month. This penalty will kick in if:
- Less than 12% of total tax liability is paid on or before 15th June (instead of 15%).
- Less than 36% of total tax liability is paid on or before 15th September (instead of 45%).
- Less than 75% of total tax liability is paid on or before 15th December (75% is expected!)
- Less than 100% of total tax liability is paid on or before 15th March (100% is expected!)
If the CG or income from other sources is significant, it is quite easy to fall short of the expected advance tax payment limits. This is why we recommend salaried taxpayers immediately pay the necessary advance tax due immediately after the redemption amount hits your bank account. Of course, one could wait until the next adv. tax deadline but salaried taxpayers are not used to this and may forget unlike those who regularly pay advance tax.
Do share if you found this useful
Explore the site! Search among our 2000+ articles for information and insight!
About The Author
Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over nine years of experience publishing news analysis, research and financial product development. Connect with him via Twitter or Linkedin or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation for promoting unbiased, commission-free investment advice.
Use our Robo-advisory Excel Template for a start-to-finish financial plan! Now with a new demo video! ⇐ More than 1000 investors and advisors use this!
Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 2800 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter what the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course! Increase your income by getting people to pay for your skills! ⇐ More than 675 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts you and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!
My new book for kids: “Chinchu gets a superpower!” is now available!
Most investor problems can be traced to a lack of informed decision making. We have all made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about? As parents, if we had to groom one ability in our children that is key not only to money management and investing but for any aspect of life, what would it be? My answer: Sound Decision Making. So in this book, we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parent’s plan for it and teach him several key ideas of decision making and money management is the narrative. What readers say!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. – Arun.
Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Want to check if the market is overvalued or undervalued? Use our market valuation tool (will work with any index!), or you buy the new Tactical Buy/Sell timing tool!
We publish mutual fund screeners and momentum, low volatility stock screeners .every month.
About freefincal & its content policy Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on developments in mutual funds, stocks, investing, retirement and personal finance. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication. Freefincal does not publish any paid articles, promotions, PR, satire or opinions without data. All opinions presented will only be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
Our publications
You Can Be Rich Too with Goal-Based Investing
Published by CNBC TV18, this book is meant to help you ask the right questions, seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now. It is also available in Kindle format.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want
This book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.
Your Ultimate Guide to Travel
This is an in-depth dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step. Get the pdf for Rs 199 (instant download)
Free android apps