Seeing some red in your investment portfolio? Don’t stress! You might be sitting on a tax-saving opportunity!
Especially now, with the Indian market experiencing a downturn over the past few months, many of you might be seeing losses in your portfolios. This makes Tax Loss Harvesting even more relevant!
Have you heard of Tax Loss Harvesting?
Tax loss harvesting is a tax-saving strategy that can be used to minimise the tax liability by selling the securities at a loss to offset against the capital gains to reduce the taxable liability and thus, saving on taxes.
How Tax Loss Harvesting Can Save You Money?
Let’s understand this through an example:
Suppose you earned a short-term capital gain of ₹75,000 in a financial year. Without any adjustments, you would incur a 20% tax liability, resulting in ₹15,000 in taxes.
However, by selling some underperforming assets and realising a loss of ₹25,000, you reduce your taxable gains to ₹50,000, effectively saving you ₹10,000 in taxes.
That’s a real difference in your pocket!
Want to Keep Those Investments?
Worried about selling your investments at loss? No worries!
If you still believe in those investments, you can simply buy them back the next day onwards, keeping your portfolio intact.
When should you do tax loss harvesting?
The best time for tax loss harvesting is between mid to late March when you have a clearer picture of your total gains or profits, and can better evaluate opportunities to offset losses.
However, you can harvest losses anytime until the last trading day of the financial year, which is March 28th this year.
Understanding Capital Gains Taxes in India:
Before diving into Tax Loss Harvesting, it’s essential to understand how capital gains are taxed, specifically for listed equity shares and equity mutual funds:
- Short-Term Capital Gains (STCG):
- These are gains from selling listed equity shares and equity mutual funds held for less than 12 months.
- STCG are subject to a concessional rate of 15% on the securities sold on or before 23nd July, 2024. Post that, this rate has been increased to 20%.
- Long-Term Capital Gains (LTCG):
- These are profits from selling listed equity shares and equity mutual funds held for more than 12 months.
- LTCG is taxed at 10% on the securities sold on or before 23 July 2024 post that this rate has been changed to 12.5%.
- LTCG up to ₹1.25 lakh per financial year is exempt from tax.
Key things to keep in mind:
- To use Tax Loss Harvesting, you need both realised gains and unrealised losses to offset against each other.
- Short-term capital losses offset only STCG, while long-term capital losses offset both short-term and long-term capital gains.
| Loss type | Long-term capital Gain | Short-term capital Gain |
|---|---|---|
| Long-term capital Loss | Yes | No |
| Short-term capital Loss | Yes | Yes |
Ready to see how much you could save on taxes?
To view a list of equity scrips with potential unrealised short-term or long-term losses, and to explore your short-term and long-term gain opportunities, go to Account → Profile → My Account → Reports → Tax Loss Harvesting → Download Scrips in the app.
Also, you can click here to access the report.
How to select which securities to sell to get maximum benefit?
After downloading the list of securities in xlsx format
- Arrange the data in ascending order based on Unrealised Net P&L or Unrealised Short-term Gain/Loss.
- Depending on whether you are looking to minimise the short-term or long-term opportunities, you can then sell the securities until there are no stocks at a loss, or there is no/minimal gain to offset.
Important Note:
- Kindly consult with a Chartered Accountant (CA) for any tax advice.
- The First-In, First-Out (FIFO) method is used to calculate unrealised losses.
Let’s turn those losses into wins!
