When calculating income tax on capital gains in India, there are several avenues available to reduce the taxable income.

Here are the points that denote these avenues:

1. Indexation Benefit: You can adjust the cost of buying and improving assets by considering the impact of inflation over time. This helps to lower the amount of taxable profit when selling the assets. For example, if you bought a property several years ago and now plan to sell it, you can account for the increase in property values due to inflation, resulting in a lower capital gains and lesser taxable profit.
2. Holding Period: If you hold an asset for a longer duration, such as stocks or real estate, the tax rates on the profit from selling those assets may be lower. For instance, if you sell stocks that you held for more than one year, the profit made would be taxed at a lower rate compared to stocks held for a shorter period.
3. Exemptions under Section 54: When you sell a residential property and use the profit to buy another property within a specified time, you can avoid paying tax on the profit made. This means you can reinvest the profit from selling your old house to buy a new one without incurring any additional tax liability.
4. Exemptions under Section 54F: If you sell any asset other than a residential property, such as land or gold, and use the money to buy a residential property, you can save on tax. For example, if you sell gold and reinvest the money in buying a house, you may be eligible for tax exemptions on the profit made from selling the gold.
5. Exemptions under Section 54EC: By investing the profit from selling an asset into specified bonds issued by entities like NHAI or REC within six months, you can avoid paying tax on the capital gains. This means you can reduce your tax liability by investing in these bonds instead of paying tax on the profit.
6. Deductions under Section 80C – for old tax regime: You can reduce your taxable income by investing in certain instruments like Employee Provident Fund (EPF), Public Provident Fund (PPF), or National Savings Certificates (NSC). For example, if you invest in EPF or PPF, the amount invested can be deducted from your total income, resulting in lower tax liability.
7. Deductions under Section 54B: If you sell agricultural land and use the proceeds to buy another agricultural land, you can claim deductions on the profit made. This means you won’t have to pay tax on the profit generated from selling the land.
8. Deductions under Section 54G: Exemption Of Capital Gains On Transfer Of Assets In Cases Of Shifting Of Industrial Undertaking From Urban Area To Any Area Other Than An Urban Area

Please note that it is important to consult with us or refer to the Income Tax Act for specific details, conditions, and limitations related to each of these avenues to ensure accurate tax planning and compliance.
Read more articles on capital gain here.