What is Tax Loss/Gain Harvesting?
Tax gain/loss harvesting is selling stocks at a loss to offset the liability of capital gains . This is generally used to limit the accounting of short-term capital gains, which attract tax in India. This practice is also known as "tax-loss selling".
We are just a few days ahead of the financial year close..
Most of us are already busy closing our books, planning for taxes etc., It’s time to give attention to our stocks and make the best out of the worst... Remember market had fallen about 17% from its peak of 9119.2 and so are the stocks which were bought at the peak.
Lets use this opportunity to book loss to maximize our post tax returns.
What’s the opportunity?
To book short term loss - sell stocks bought between April 2015 till date at a loss
Adjust loss against profits booked during the period between April 2015 till March 31st 2016.
Carry forward the loss (not adjusted in the current year) for next 7 consecutive years.
When can this opportunity be used?
Before 31st March 2016
What is to be done to use the opportunity?
Sell stocks bought within a year if they are at loss – this is called Short Term Loss
Buy back the stocks the next day or immediately after selling to retain them in the portfolio
Who can use this opportunity?
You are a trader..
If you trade in F&O segment
If you do intraday trading
If you trade in equity delivery very frequently
You are an investor, if you trade in equity delivery once in a while
% of Tax on short term gains ~ 15%
Share transactions are considered as business income and hence, all profits (long term and short term) are taxed as per your Income tax slab rate
Investor who has booked a profit of 1 lakh in 2015-16
Your tax obligation is on entire 1 lakh
You may increase your post tax returns if you sell your current holdings (if they are bought within a year) at loss. Assume you booked a loss of 90000.
Your net tax obligation will be 1,00,000 – 90000 = 10000 on which you have to pay tax.
You may choose to buy back the stocks sold at loss the next day. For more details please email email@example.com.