Interesting Fact:
In India, long-term capital gains (LTCG) over ₹1 lakh from equity mutual funds are taxed at 10% in 2025. With smart planning, investors can save thousands in taxes while still growing their wealth.
Introduction
Taxes quietly reduce your investment returns. Even if your portfolio performs well, high taxes can significantly eat into your real gains.
This is where tax-efficient investing comes in. It’s not about avoiding taxes, it’s about strategically planning your investments to minimise tax liability legally.
Whether you are just starting or managing a large portfolio, careful tax planning ensures more of your earnings stay invested, helping you build wealth faster.
1. Choose Tax-Friendly Investments
Some investments come with built-in tax advantages:
- Equity-Linked Savings Schemes (ELSS): 3-year lock-in, qualifies for Section 80C deductions.
- Public Provident Fund (PPF): Contributions are eligible for 80C deductions; interest earned is tax-free.
- National Pension Scheme (NPS): Additional tax benefits under Section 80CCD(1B); partial withdrawals at retirement are tax-free.
Example:
Investing ₹1.5 lakh in ELSS in 2025 can save up to ₹46,800 in taxes while benefiting from equity market growth.
2. Use Tax-Loss Harvesting
Tax-loss harvesting involves selling investments at a loss to offset gains from other assets.
- Reduces taxable income
- Proceeds can be reinvested to stay invested without losing potential growth
Example:
If your mid-cap mutual fund lost ₹50,000 but your large-cap fund gained ₹1 lakh, selling the loss-making fund reduces taxable gains to ₹50,000.
3. Plan Your Holding Period
The tax you pay depends on how long you hold an asset:
- Short-term gains: Taxed higher (15% for equities, 30% for debt).
- Long-term gains: Taxed lower (10% for equities, 20% for debt with indexation).
Example:
Holding an equity mutual fund for 3+ years in 2025 means you pay only 10% LTCG above ₹1 lakh instead of 15% short-term gains. Longer holding periods can save substantial taxes.
4. Leverage Retirement Accounts
Investing through retirement accounts like EPF, PPF, NPS, or corporate superannuation plans:
- Reduces current taxable income
- Offers compounded, tax-efficient growth
- Withdrawals are partially or fully tax-free
Example:
Contributing to NPS Tier-1 allows additional ₹50,000 savings under Section 80CCD(1B), over the standard 80C limit.
5. Optimize Asset Location
Place assets strategically to minimize taxes:
- Tax-inefficient assets: Debt funds, interest-bearing instruments → keep in tax-advantaged accounts
- Tax-efficient assets: Equity funds, long-term stocks → hold in regular brokerage accounts
Example:
Keeping debt mutual funds inside PPF or NPS protects gains, while equity mutual funds outside allow for LTCG exemptions.
6. Monitor Dividends
Dividends above ₹5,000 from equity funds are taxed at 10%.
- Growth plans can avoid immediate taxation while compounding returns
- Dividend reinvestment keeps wealth invested without triggering taxes
Example:
Switching to a growth plan in 2025 could save thousands annually while your investments continue to grow.
7. Use Tax-Efficient Funds and ETFs
- Index funds and ETFs have lower turnover, generating fewer capital gains
- Reduces taxable events compared to actively managed funds
Example:
A Nifty 50 ETF may incur fewer taxable gains than an actively traded large-cap mutual fund.
8. Consider Timing Withdrawals and Redemptions
- Spread redemptions across years to remain in lower tax brackets
- Withdraw debt funds or bonds after long-term thresholds for indexation benefits
Example:
Selling a debt fund after 3 years can reduce the effective tax rate from 30% to around 10–15% using indexation.
Real-World Context
- Groww and Zerodha provide tax calculators, helping investors plan redemptions efficiently.
- Paytm Money highlights LTCG/STCG thresholds, making tax-efficient planning easier.
- In 2025, more investors are using fintech platforms to actively minimize taxes while growing wealth.
Conclusion
Tax-efficient investing is about smart planning, not avoiding taxes. By:
- Choosing tax-friendly investments
- Timing holdings strategically
- Using retirement accounts
- Leveraging fintech-powered tools
…you can reduce taxable income, minimise capital gains taxes, and grow your wealth faster.
At Equentis Investech, we combine tax planning with digital investment strategies to help investors maximise returns while minimising taxes. Start planning today to keep more of your money working for you.
