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Tax loss harvesting explained

2 Mins 19 Apr 2023 0 COMMENT

Simple hack to save up capital gains tax that you likely didn't know. Imagine you purchased shares of a company on which you are sitting on a loss. Do you know how you can take advantage of this opportunity to save tax, how?

Suppose you but shares worth ₹70,000 that are now worth ₹50,000. Imagine you are also having other shares in your portfolio where you are sitting on a gain. Say shares you purchased for ₹50,000 which are now worth ₹80,000. You can sell both the loss making and profitable shares and set off the losses against the gains, means your net gain will be considered only ₹10,000 after deducting the ₹20,000 loss from the ₹30,000 profit assuming that both these were short term gains and losses.

Now you have to pay only ₹1,500 on the ₹10,000 adjust gains rather than ₹4,500 you would have after selling the second stock. What’s better, you can buy the same set of stocks two days after selling them if you want to continue to hold them. This tax saving method is called tax loss harvesting. The Indian tax law does not say anywhere that tax loss harvesting is illegal, however it is considered illegal in some countries such as US. Hence, as a matter of precaution, you should consult your CA before doing this.

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