February 8, 2025
Why Do Rich People Pledge Their Shares Instead of Selling?
Ever wondered why billionaires don’t sell their shares but instead take loans against them? It’s not just about liquidity—it’s a smart tax and wealth preservation strategy.
Here’s how it works:
✅ Avoiding Capital Gains Tax – Selling shares triggers capital gains tax (10% on long-term gains above ₹1 lakh in India under Section 112A). By pledging shares and borrowing instead, they get tax-free liquidity.
✅ Low-Interest Borrowing – Wealthy promoters can borrow at low interest rates (often <10%) by using their shares as collateral. This is much cheaper than paying high personal income tax (up to 42.74% with surcharge).
✅ Retaining Control – If they sell shares, their ownership stake in the company reduces. By pledging shares, they get liquidity without losing control over their business.
✅ Intergenerational Wealth Transfer – Upon inheritance, the shares get a step-up in cost basis (Section 49 of the Income Tax Act), reducing capital gains tax for heirs.
Billionaires like Mukesh Ambani, Gautam Adani, and others have leveraged this strategy for years to optimize their finances. It’s a powerful way to keep wealth compounding while minimizing tax outflows.
What do you think of this strategy? Would you consider pledging assets instead of selling them? Let’s discuss! #Finance #TaxPlanning #WealthManagement #Investing
February 8, 2025