How loss from equities could help you save more tax ?

Tax-loss harvesting helps investors reduce tax liabilities by selling loss-making stocks to offset capital gains. In India, capital gains tax depends on the holding period:

• Short-Term Capital Gains (STCG): Stocks held for less than 12 months are taxed at 15%.
• Long-Term Capital Gains (LTCG): Stocks held for over 12 months are taxed at 10% if gains exceed ₹1.25 lakh.

How to Use Tax-Loss Harvesting

1. Identify Loss-Making Stocks: Look for investments that have significantly dropped in value.
2. Sell to Book Losses: Selling these stocks allows you to realize capital losses.
3. Offset Gains: Use these losses to reduce your taxable gains.
4. Reinvest: Buy similar stocks to maintain your investment strategy.

Example

Suppose you have a long-term capital gain of ₹4 lakh and a long-term capital loss of ₹2 lakh from another stock. By offsetting the loss, your taxable LTCG reduces to ₹2 lakh. After applying the ₹1.25 lakh exemption, you are taxed only on ₹75,000, reducing your tax burden.

Key Benefits

• Set-Off Flexibility: Short-term losses offset both short- and long-term gains, while long-term losses offset only long-term gains.
• Carry Forward Losses: Unused losses can be carried forward for up to eight years.

Using tax-loss harvesting wisely can help investors lower taxes and improve portfolio efficiency.