Harvesting the Loss as a Tool of Tax Planning

 

The Indian stock market has been experiencing a downturn, leading to negative portfolios for many investors.

 Tax harvesting can help mitigate some of these losses. Its a great strategy to optimize tax liabilities, especially during market volatility.

Here’s a simplified explanation of tax harvesting:

1. Book profits earlier in the year: If you’ve already booked profits from your investments, you might be liable for capital gains tax.

2. Incur losses later: If the market declines, you might incur losses in other investments which might be unrealised (generally we held our losses)

3. Set off losses against profits: By booking your losses, you can set them off against the profits booked earlier, reducing your capital gains tax liability.

Example:

Booked profit of ₹100,000 earlier in the year ( say short Term)

Incurred loss of ₹80,000 later in the year, Set off loss against profit:

₹100,000 (profit) – ₹80,000 (loss) = ₹20,000 (taxable), if losses are more than profits same cam be carried forward also.

By tax harvesting, you can reduce your tax liability and save on capital gains tax.

Before making any decisions, consider the following:

1. Consult your financial advisor: Get personalized advice based on your investment portfolio and tax situation.

2. Study your portfolio: Analyze your profit and loss statement to identify opportunities for tax harvesting.

3. Brokerage costs: Factor in the brokerage costs associated with selling and buying investments.

Now, last few days are available for the harvesting of the loss. Tax harvesting is a strategy to optimize tax liabilities, not a guarantee of returns. Always prioritize your investment goals and risk tolerance when making decisions.