Tax harvesting to rescue equity investors: How loss from equities could help you save more tax

income tax only when you sell your holdings. While you need to pay taxes on your gains, you also get an opportunity to save taxes in case you incur losses. Short-term capital loss on selling equities can be adjusted against any short-term or long-term capital gains on selling equities. When it comes to long-term capital loss it can be adjusted only against long-term capital gain on equities. You are also allowed to carry over the losses for future years.

This method, which is called tax harvesting method allows individual taxpayers to not pay capital gains tax on their equity shares and mutual funds. However, this method can only be effectively used only if you have long term capital gains (LTCG) on equities up to Rs 1.25 lakh or have any significant loss from equities. The reason for this is because LTCG up to Rs 1.25 lakh is non-taxable though you need to declare this income in the ITR. However, if you have any significant loss, then you can set off it against any capital gains in future and can even carry it forward for up to eight years.

The best part is that the new tax regime does not specifically alter the rules for claiming capital gains losses. Moreover, the new tax regime maintains the same rules as the old tax regime for carrying forward losses.

Read below to understand how this tax planning process works and how you can use it to lower your capital gains tax liability or make it nil.

How do you not pay any capital gains tax on equity shares and mutual funds?

To completely not pay any capital gains