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Indian investors can save taxes by keeping separate portfolios for long-term investments and active trading, enabling clearer LTCG benefits and smarter tax planning.
News18
Taxpayers need to pay taxes on capital gains arising from investing in equities. The rate of tax depends on the duration: Long-Term Capital Gain (LTCG) and Short-Term Capital Gains (STCG). Short-term capital gains (STCG) on listed equities apply when shares are sold within 12 months, and these gains are taxed at 15% without any exemption. Long-term capital gains (LTCG) apply when equities are held for more than 12 months, and they attract a lower 12.5% tax rate, with an annual exemption of Rs 1.25 lakh.
One of the strategies by investors to save taxes is separating long-term investments and active trading activity in two separate portfolios. It is emerging as one of the most practical yet underused tax-saving strategies for Indian investors, according to tax professionals.
As retail participation rises and more individuals mix long-term holdings with short-term trades, experts say this separation can protect investors from avoidable tax leakages and scrutiny.
According to CA Sonu Jain, Chief Risk and Compliance Officer at 9Point Capital, separating these books removes ambiguity about an investor’s intention. A clean, ring-fenced investment portfolio makes it clear that the holdings are meant for long-term wealth creation. This clarity helps investors retain the benefits of long-term capital gains (LTCG) taxation, including the Rs 1.25 lakh annual exemption and the lower 12.5% LTCG tax rate. It also greatly reduces the risk of tax authorities treating the entire activity as business income—a move that can push investors into higher slab rates.
A separate trading book, Sonu Jain said, allows investors to freely take short-term, speculative or derivatives-led positions without disturbing the tax identity of their long-term holdings. While trading income comes with heavier compliance—possible tax audit triggers, detailed books of accounts, and stricter documentation—it also gives traders the flexibility to claim a wider set of business expenses as deductions. This can help reduce taxable business income.
Experts say this clean separation also supports smarter tax-harvesting. Investors often use loss-making stocks to offset gains from other assets such as property, bringing down overall tax liability. The rules on loss adjustment also open up room for deeper planning. Long-term capital losses can only be set off against long-term gains, but short-term losses can be adjusted against both short-term and long-term gains. In some cases, a loss on an asset taxed at 10% can be set off against gains taxed at 20%, creating meaningful savings because the law does not restrict the type of capital asset for set-off.
Commenting on the tax treatment, Mihir Tanna, Associate Director – Direct Tax, S K Patodia & Associates LLP, said that if income from listed shares is classified as business income, it gets taxed at slab rates. If it is treated as capital gains, the rate drops to 12.5% or 20% depending on the holding period. Maintaining two separate portfolios—one for investment and another for trading—helps avoid classification disputes and enables more effective tax strategies, he added.
Navy Vijay Ramavat, Managing Director, Indira Securities added having separate demat accounts for trading and investing is essential for both tax efficiency and long-term wealth building. “When you buy and sell the same stock in one account, the FIFO (First In, First Out) rule can cause confusion. You might intend to sell a short-term trading position, but the system could sell your older, long-term holdings first. This not only disrupts your tax planning—by denying you the lower 12.5% long-term capital gains rate—but could also make you pay higher short-term tax (20%) on the wrong transaction,” Ramavat said.
Disclaimer: The views and investment tips by experts in this News18.com report are their own and not those of the website or its management. Users are advised to check with certified experts before taking any investment decisions.
Varun Yadav is a Sub Editor at News18 Business Digital. He writes articles on markets, personal finance, technology, and more. He completed his post-graduation diploma in English Journalism from the Indian Inst…Read More
Varun Yadav is a Sub Editor at News18 Business Digital. He writes articles on markets, personal finance, technology, and more. He completed his post-graduation diploma in English Journalism from the Indian Inst… Read More
November 25, 2025, 14:37 IST
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