How wealthy investors use Lombard Lending to defer Capital Gains Tax: Borrowing against shares rather than selling them
Some wealthy investors raise money without selling shares that have gained value. Instead, they borrow against those shares, delaying the capital gains tax that would be triggered by selling.
Globally, this practice is called Lombard lending, a product rooted in private banking. In India, similar products are called loans against shares or securities.
Investors pledge their shares to a bank or a non-banking financial company. The shares remain in their names, allowing them to retain dividends and voting rights.
Borrowing itself does not constitute a sale, so capital gains tax is not triggered. However, the loan must eventually be repaid, along with interest.
Lenders generally offer loans worth around 50% to 60% of the pledged shares’ value. Some lending guides give different limits, making the applicable terms important.
Small and mid-cap shares may qualify for loans worth only 30% of their value. Interest rates generally range between 9% and 12%, with interest paid monthly.
Suppose shares worth ₹1 crore include gains of ₹60 lakh. Selling all these shares would create an estimated tax bill of ₹7.6 lakh. This assumes the shares qualify for long-term capital gains treatment.
The example uses a 12.5% Long-Term Capital Gains (LTCG) tax rate and an annual ₹1.25 lakh exemption. It also includes a 4% cess. Listed shares qualify for this treatment when held for more than 12 months.
Alternatively, the investor could borrow ₹50 lakh at 10% interest. That would cost ₹5 lakh in interest annually. Under these assumptions, borrowing costs less than selling, with repayment within roughly 18 months. The comparison excludes returns earned on the shares retained.
The strategy delays tax rather than removing it permanently. In America, inherited assets can be reassessed at a new cost that wipes out earlier gains. India has no similar step-up for inherited shares. Although inheritance itself is not taxable, heirs generally retain the previous owner’s purchase cost. The accumulated gain becomes taxable when they sell.
Falling share prices pose another danger: a margin call. Lenders may require additional collateral or a partial repayment when pledged shares lose value.
Failure to comply can lead lenders to sell those shares. Such forced sales can lock in losses during difficult market conditions.
Interest payments also require cash and may force investors to sell other assets. Interest may not be deductible when borrowing is unrelated to the purchase of shares.
This approach, therefore, suits temporary cash needs and is supported by a clear repayment plan. Professional tax guidance remains especially important before borrowing.
Sounak Mukhopadhyay covers trending news, sports and entertainment for LiveMint. His reporting focuses on fast-moving stories, box office performance, digital culture and major cricket developments. He combines real-time updates with clear context for everyday readers. <br><br> Sounak brings newsroom experience across breaking news, explainers and long-form features. He has a strong emphasis on accuracy, verification and responsible storytelling. His work tracks audience behaviour, celebrity influence and the business of sport and cinema. He helps readers understand why a story matters beyond the headline. <br><br> Sounak has contributed to widely read digital publications. He continues to build a body of journalism shaped by consistency, speed and editorial clarity. He is particularly interested in the intersection of media, popular culture and public conversation in contemporary India. <br><br> At LiveMint, he writes daily coverage as well as analytical pieces that interpret numbers, trends and cultural moments in accessible language. His approach prioritises factual depth, balanced framing and reader trust. The reporting aligns with modern newsroom standards of transparency and credibility. <br><br> Outside daily reporting, he explores storytelling across formats including podcasts, filmmaking and narrative non-fiction. Through his journalism, Sounak aims to document the rhythms of modern entertainment and sports while maintaining rigorous editorial integrity. <br><br> Sounak continues to develop audience-focused journalism that connects speed with substance in a rapidly-changing information environment. His work seeks clarity, trust and lasting public value in every story he reports.
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