Tax-loss harvesting is a strategy used to minimize tax liability by selling investments that are loss making. When an investment is sold at a loss, the investor can use that loss to offset capital gains realized from other investments.
How to Do Tax Loss Harvesting?
Case 1: Short Term Capital Gain:
If you have Short Term Capital Gain on Listed Shares or Equity Mutual Funds, then the tax rate is 15%. You can set off this Gain against any Short-Term Capital Loss. Hence if you have any short-term capital assets (Securities or Equity mutual funds purchased less than one year ago) in your portfolio, you can sell them and buy them back (if you are willing to hold it) after one day to offset this loss with your booked profit.
Case 2: Long Term Capital Gain:
If you have Long Term Capital Gain on Listed Shares or Equity Mutual Funds, then the tax rate is 10% on Income greater than Rs.100000. You can set off this gain against both Short Term Capital Loss as well as Long Term Capital Loss. Hence if you have any long-term capital assets (Securities or Equity mutual funds purchased more than one year ago) in your portfolio, you can sell them and buy them back (if you are willing to hold it) after one day to offset this loss with your booked profit. However, try to set off only such gains which is more than 100000 since, the first Rs.100000 is tax free.
Case 3: Long Term Capital Gains that you haven’t booked
It would be a good strategy to book Gains of upto Rs.100000 to take advantage of the exemption and then buy back the stock if you desire to hold it in your portfolio. In this way, you can save taxes on such gains.
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