The Three-Year Exemption: What It Is
Article 219.1 of the Tax Code establishes an investment tax deduction based on the holding period: if you have held securities (shares, bonds, mutual fund units) for more than three years, the profit from their sale is exempt from personal income tax (NDFL).
The maximum deduction: 3 million rubles × the number of full years held. For an exactly three-year holding period, the maximum tax-free profit is 9 million rubles (3 × 3 million). For four years — 12 million rubles, and so on.
If the profit exceeds the deduction, the excess is taxed at the standard rate.
What Counts as the Holding Period
- For a standard brokerage account: the holding period runs from the date of purchase.
- For an IIS (individual investment account) of Type A: Type A benefits and the holding-period exemption do not automatically combine — a separate calculation is needed.
- For mutual fund units: the holding period runs from the date the units are redeemed, not from the date they were purchased.
An important caveat: the securities must be traded on a Russian organised exchange. Foreign securities traded only on overseas markets do not qualify for the exemption.
How to Apply the Deduction When Repaying a Loan
If you hold securities with a three-year history and want to sell them to repay a mortgage or consumer loan, the process is as follows:
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Check the holding period for each security. Your broker typically provides this information in the client account or on request.
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Calculate the maximum deduction. If you held the securities for four years, the maximum tax-free profit is 12 million rubles.
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Sell the securities through your broker. The broker, acting as a tax agent, automatically applies the deduction when calculating the year-end tax — provided you have notified them.
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Submit a written request to your broker to apply the deduction before the end of the year in which you make the sale. Without this request, the broker will withhold NDFL in the usual way.
Pitfalls
Losses cannot automatically offset gains. If in the same year you sold other securities at a loss, those losses can be set off against profits from securities sold under the three-year exemption only under specific conditions. A consultation with a tax specialist is advisable.
The deduction does not apply automatically. You must expressly claim it with the broker or through a personal income tax return.
The exemption does not apply to IIS accounts. The holding-period deduction and IIS tax benefits are different instruments with different rules.
Read Also
- ILI Is Not a Bank Deposit: How Investment Life Insurance Can Turn 5 Million Into 200,000 Rubles
- Tax on Selling Russian Property as a Non-Resident: How to Legally Reduce the Rate From 30% to 0%
Planning to sell securities and want to minimise your tax exposure? Contact us for a tax consultation — we will calculate the optimal strategy and help you apply the deduction correctly.