Bed and breakfast is a strategy to save the capital gains taxes by selling and purchasing the same shares back. Investors would sell the shares on the last day of the financial year and have a contract with their broker to buy the same shares back next morning. This was heavily practiced in the United Kingdom to get tax exemption. This way the investors would also maintain their investment portfolio.
However, in 1998, the government of UK regulated the practice. Investors would now have to wait 30 days to buy the shares in the same category. In order to surpass the rule, the investors sell their shares to their spouses or a relative, so that the shares remain within the family. In India, it is beneficial to keep the investment for a longer term as taxes for short term is higher than the long term capital gain.
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