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EVM & Capital Gains Tax

EVM & Capital Gains Tax

Understanding Recommendation Schedule, Holding Periods, and Tax Implications

Disclaimer

The information provided above is intended to explain the practical tax implications that may arise because of the annual recommendation cycle followed by the EVM (Expectations Value Model) framework.

As a SEBI-registered Research Analyst, our role is limited to providing research recommendations and related disclosures in accordance with applicable SEBI regulations.

Tax planning, tax advisory, investor-specific execution guidance, and personalized guidance or support (hand-holding) are outside the scope of services permitted to a SEBI-registered Research Analyst.

Accordingly, the discussion above should not be construed as tax advice, investment execution advice, or personalized financial guidance.

Investors are advised to consult their tax advisors, chartered accountants, or financial consultants before taking investment or tax-related decisions based on their individual financial situation.

Tax laws and regulations are subject to change. The information above reflects the position as of the date of publication and may not account for subsequent amendments or updates.

Every year, we release our BUY recommendations on 31st May (or the next working day if 31st May falls on a weekend or market holiday). At the same time, we also release SELL recommendations for the previous year’s portfolio.

Why Recommendations Are Released Only Once a Year

The primary reason is the way our proprietary quantitative model — EVM (Expectations Value Model) — works. EVM requires the latest annual financial data of all listed companies to generate rankings and identify the best opportunities. Listed companies generally have time until 31st May to publish their annual results. Therefore:
  • The full data becomes available only around 31st May
  • EVM can run meaningfully only after that
  • This naturally results in a once-a-year recommendation cycle
Releasing BUY and SELL recommendations simultaneously ensures investors transition directly from the previous portfolio to the new one, without moving into cash in between. This approach also avoids the need to time the market or move into cash waiting for future opportunities. The lower LTCG tax rate is therefore an incidental benefit of the process — not its primary purpose.

The Current Year’s Situation

Year Recommendation Date Reason
Previous Year BUY Recommendations 2 June 31st May was Saturday
Current Year BUY Recommendations 1 June 31st May is Sunday
This creates a one-day mismatch:
  • The previous portfolio was purchased on 2 June last year. The 12-month holding period therefore completes only on 2 June this year.
  • But the new recommendations are released on 1 June this year.
Selling on 1 June may therefore attract Short Term Capital Gains (STCG) tax instead of Long Term Capital Gains (LTCG) tax.

Tax Difference

Type Holding Period Tax Rate
STCG Less than 12 months 20%
LTCG 12 months or more 12.5% (on gains above ₹1,25,000 per year)
Tax rates are as per current applicable rates and are subject to change. Example (assuming total gains exceed the ₹1,25,000 LTCG exemption threshold):
Scenario Tax Rate Tax on ₹3,00,000 Gain
Sell on 1 June (STCG) 20% ₹60,000
Sell on 2 June (LTCG) 12.5% on ₹1,75,000 taxable gain* ₹21,875
*After deducting the ₹1,25,000 LTCG exemption from the ₹3,00,000 gain, ₹1,75,000 is taxable at 12.5%.

The Important Point Investors Should Understand

This is primarily a calendar alignment issue. Over long periods, occasional mismatches between recommendation dates and the 1-year holding period are unavoidable because of weekends and market holidays. In practical terms, investors following the EVM annual cycle may have to bear STCG taxation roughly once every 5–6 years. As a result, although the LTCG rate is currently 12.5%, the effective long-term tax burden under the EVM framework may work out to approximately:

13.5% – 14% Effective Average Tax Rate

This is because one occasional STCG year gets averaged across several LTCG years. For illustration: assuming STCG applies once every 6 years, the blended rate works out to (5 × 12.5% + 1 × 20%) ÷ 6 ≈ 13.75%. The actual figure will vary based on individual circumstances and any future changes to tax rates.

What Makes More Sense This Year?

Selling on 1 June this year does not permanently solve the calendar mismatch issue. Even if STCG is accepted this year, similar mismatches can still happen in future years because weekends and holidays keep changing. For most investors, the more sensible approach this year may therefore be:
  1. Continue holding the previous portfolio till 2 June
  2. Benefit from the lower LTCG tax rate
  3. Enter the new recommendations one day later
This avoids unnecessary tax leakage in the current cycle while accepting that occasional STCG years are a natural part of a long-term annual investment framework.

Alternative Approaches

Approach Pros Cons
Sell on 2 June ✅ Recommended LTCG benefit, better post-tax return Enter new portfolio one day later
Use temporary additional capital Immediate participation + LTCG benefit Requires additional liquidity
Sell on 1 June Simplest execution Higher STCG tax, no exemption benefit

Final Thoughts

Occasional calendar-driven tax mismatches are an unavoidable part of a systematic annual investment process. For the current year, waiting until 2 June before selling appears to be the most practical and tax-efficient approach for most investors.