CFA Wealth Management Expert Vaibhav Jain4 minutes ago
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Closing of FY 2025 is now only 30 days left. This is very important for taxpayers and investors for a month. They should adopt strategies that can help reduce their tax obligations. Tax Loss Horvesting is one such legal method that allows you to reduce your capital gains tax and maximize long -term investment returns. use them. How does it work? Understand this …
What is Tax Loss Horvesting? This is a very effective process of adjusting short or long -term capital gains by selling negative holding stocks in the portfolio. By doing this you can reduce taxable income. Suppose, you have suffered losses on any investment, but if you have booked profit on second investment in the same financial year, then you can adjust the loss in lieu of profit.
What are the capital gains and its tax rules? If equity investment is for less than 12 months, then it levies a short -term capital gains tax of 20%. The profit of up to 1.25 lakhs on investment of more than a year is free. The amount above this is attached to the long term capital gains at the rate of 12.5%. However, the benefits of date funds are taxed according to your income tax slab, no matter what the holding period is.
How to adopt Tax Loss Horvesting? Remember … short -term losses can be adjusted with both short and long -term profits, but the loss on long -term investment can only be adjusted with long -term capital gains. If you have a short term or long -term capital gains, look for investments that are in harm and consider selling them to adjust the taxable profit.
Suppose you have given ₹ 5 thousand. Bought 100 stocks in the price of K, but the price fell to ₹ 4 thousand. That is, there was a loss of one lakh rupees. If there is a short term capital gains of ₹ 1 lakh from the second stock, then you can save 20% short term capital tax through this loss. There has been a recent correction in the market, causing some of your holding to loss.
What to do before 31 March?
- Review portfolio: Identify investment with profit and deficit. Sell disadvantage assets to adjust the profit. To take advantage of tax exemption, book long term capital gains up to ₹ 1.25 lakh. If your disadvantage is more than profit, then take them forward. You can carry forward capital loss up to 8 years to accommodate future benefits. What kind of precautions should be taken in this?
- First in, First out Rules: When you sell shares, the oldest shopping is sold first. Always check your holding period before selling unnecessary short term tax liability.
- SIP investors be alert: If you have invested from SIP, only units older than 12 months will be eligible for long term capital gains. If you are in profit and sell all units at a time, some may levy 20% short term capital gains tax.
- Brokerage Fee and STT: Every time you buy or sell stocks, a small brokerage fee and STT are applied. But this tax is extremely modest than the benefits from harvesting.
Understand these two examples, how tax harvesting reduces tax
- First Senereo: Tax harvesting can help investors to reduce tax on Longator Capital Gains (LTCG). Suppose Ramesh bought 100 shares of a company at a price of 5 thousand per share in January 2024. That is, invested a total of 5 lakhs. In February 2025, the price increased to 6,250. This benefited from 1.25 lakhs. In March 2026, the price was 7500 and the total profit on investment increased to 2.5 lakhs. Booking profit will be taxed at Rs 15,625.
- Second Senaero: Raju bought 100 shares in January 2024 at a price of 5 thousand/shares. In February 2025, the price increased to 6,250. Raju sold his holding and gained 1.25 lakhs. No tax was made. Raju believes that this stock will give good returns even further. He then bought this stock. In March 2026, the stock became 7,500. This led to a profit of 1.25 lakhs. Raju again adopted the same strategy and made investment tax free and saved Rs 15,625 compared to Senaario-1.
