What is tax loss harvesting and how can it help you save taxes? MintGenie explains
As the tax-saving season nears its end, many taxpayers turn to tax-harvesting strategies to reduce their tax burden. For those unfamiliar, this approach involves selling investments that are currently at a loss (purchased at a higher price than their current value) to offset the capital gains taxes owed on profitable investments.
It’s widely recognized that investors generally aim to minimize their tax liabilities. While many individuals invest towards the end of the year for tax savings, there are alternative strategies to consider. In a fluctuating market, preserving your gains becomes a concern. Tax-loss harvesting allows you to sell investments at a loss to decrease your tax obligations, a tactic commonly employed by seasoned investors.
Tax-loss harvesting relies on having both capital gains and capital losses within your investment portfolio. Here’s the rationale behind this strategy:
Thus, if the markets haven’t yielded any gains (all your holdings have either remained stable or increased), tax-loss harvesting would not be relevant for that particular year. Nonetheless, any unused capital losses can be carried forward to subsequent tax years to offset future capital gains.
Capital gains tax is levied on the profits earned from selling equity funds and stocks in India. The applicable tax rate is determined by the duration for which the investment was held before its sale, known as the holding period. Here is an explanation of how capital gains tax is applied to equity funds and stocks in India:
Long-term capital gains (LTCG): Applicable to investments held for over a year, a flat 10% tax is imposed on LTCG that exceeds Rs. 1 lakh in a financial year. It’s crucial to note that the indexation benefit, which accounts
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