Loans Against Securities: India’s Tax-Efficient Liquidity Tool Gains Momentum

Loans Against Securities: India’s Tax-Efficient Liquidity Tool Gains Momentum

 

RBI norms safeguard investors while enabling collateral-based borrowing

 

Banks and NBFCs compete with flexible rates and overdraft facilities

 

By Business Reporter

New Delhi: May 24, 2026:

 

Legal and Regulatory Framework

1. Capital Gains Tax in India

• Short-term capital gains (STCG): 15% on listed equity sold within 12 months.
• Long-term capital gains (LTCG): 10% on gains above ₹1 lakh after one year.
• Selling appreciated securities to raise cash directly triggers these taxes.

2. Loans Against Securities (LAS)

Readers interested in property succession disputes, validity of Wills, inheritance rights, and civil evidence under Indian law should examine the Supreme Court judgment in K. Laxmanan Vs Thekkayil Padmini and Others. The Court discussed the legal requirements for proving testamentary documents, ownership claims, and succession-related property disputes. This judgment is an important reference for understanding how Indian courts assess documentary evidence, family claims, and testamentary succession in civil litigation.

• Definition: Loans secured by listed shares, bonds, ETFs, or mutual fund units.
• Regulation: RBI guidelines govern lending against shares and mutual funds.
• Tax Advantage: Borrowing does not amount to a “transfer” under the Income Tax Act, hence no capital gains tax liability.

3. Market Practices

• Banks (HDFC, ICICI, Kotak Mahindra): Offer overdraft-style LAS with flexible repayment.
• NBFCs (Bajaj Finance, Edelweiss, IIFL): Provide digital onboarding, faster approvals, and higher flexibility.
• Loan-to-Value (LTV): Typically, 50–70% depending on volatility of pledged securities.
• Interest Rates: Generally, 9–12% annually, lower than unsecured personal loans.

4. Risks and Safeguards

• Margin Calls: If collateral value falls, lenders may demand repayment or liquidate pledged securities.
• RBI Restrictions: Banks cannot lend against shares of their own group companies.
• Suitability: Best suited for HNIs, promoters, and investors with large portfolios.

 

Comparative Table: LAS Schemes in India

(Rates and eligibility vary by borrower profile and collateral type; figures are indicative based on current market offerings.)

 

FAQs for Quick Understanding

Q1: How do LAS help avoid capital gains tax?
Borrowing against securities does not constitute a “transfer” under the Income Tax Act, hence no capital gains tax is triggered.

Q2: Who offers LAS in India?
Banks like HDFC, ICICI, Kotak and NBFCs like Bajaj Finance, Edelweiss, IIFL.

Q3: What securities can be pledged?
Listed shares, mutual fund units, bonds, ETFs, and in some cases, promoter holdings.

Q4: What are the risks?
If collateral value falls, lenders may liquidate securities. Interest costs also apply.

Q5: Are LAS suitable for retail investors?
Primarily targeted at HNIs and promoters, but some banks offer smaller ticket loans (₹5–10 lakh) against mutual funds for retail clients.

Q6: How does RBI regulate LAS?
Through prudential norms on LTV ratios, eligible collateral, and transparency requirements to protect borrowers and maintain market stability.

 

Conclusion

Loans against securities are becoming a mainstream wealth management tool in India, offering liquidity without triggering capital gains tax. With RBI oversight ensuring responsible lending, and banks/NBFCs providing flexible overdraft structures, LAS are particularly attractive for promoters and HNIs. However, investors must weigh benefits against risks like margin calls and interest costs. For those with significant unrealized gains, LAS provide a tax-smart alternative to selling securities.