As per the Union Budget 2024, profits earned from selling equity investments are subject to capital gains tax as follows:

• Short-Term Capital Gains (STCG): 20% tax if investments are sold within one year.
• Long-Term Capital Gains (LTCG): 12.5% tax if investments are sold after one year.

However, there’s a legal way to reduce this tax burden—Tax Loss Harvesting!

What is Tax Loss Harvesting?

Tax Loss Harvesting is a strategy where investors offset capital losses against capital gains, effectively lowering their taxable income.

By selling underperforming stocks or assets at a loss, investors can use these losses to reduce the taxable gains from profitable investments, ultimately minimizing the tax they owe.

Example of Tax Loss Harvesting

Scenario 1: Offsetting Losses Against Gains

Scenario 2: When Losses Are Greater Than Gains

Note: If losses exceed gains, the remaining ₹30,000 can be carried forward and adjusted against future capital gains for up to 8 years.

Benefits of Tax Loss Harvesting

✅ Lower Tax Payments – Offsetting losses reduces taxable capital gains, minimizing tax liability.

✅ Carry Forward Losses – Any unadjusted capital loss can be carried forward for up to 8 years and adjusted against future gains.

✅ Flexible Offsetting – Short-term capital losses (STCL) can be adjusted against both short-term and long-term capital gains, while long-term capital losses (LTCL) can only be used to offset long-term gains.

✅ Better Portfolio Management – Selling underperforming assets allows investors to rebalance their portfolio for better performance.

Key Considerations for Tax Loss Harvesting

• Timing Matters – Ensure losses are realized before the financial year ends to take advantage of this strategy.
• No Immediate Repurchase – Repurchasing the same stock right after selling may violate tax regulations.
• ITR Filing is Mandatory – To carry forward losses, investors must file their income tax return (ITR) on time.

Final Thoughts

Tax Loss Harvesting is an effective tax-saving strategy that allows investors to make smarter financial decisions. By strategically offsetting losses against gains, taxpayers can legally reduce their tax burden while optimizing their portfolio.

However, while tax savings are beneficial, long-term investment growth should always be the priority.

Disclaimer: This article is for educational purposes only and not any recommendation