Tax harvesting is a strategy used to manage gains and losses in an investment portfolio to minimize tax liability. In India, Short Term Capital Gains (STCG) are taxed at 15%, while Long Term Capital Gains (LTCG) are taxed at 10% after 1 lakh. Only realized gains are subject to taxation, not unrealized gains.
Realized profits can be reduced by offsetting them with realized losses, thereby reducing the overall tax burden. Every transaction is tracked, and failure to report gains accurately can lead to penalties or scrutiny by tax authorities in the future.
Tax harvesting involves strategically selling assets to realize losses, which can then be used to offset taxable gains. Losses can be carried forward for up to eight assessment years for both short term and long term capital gains. However, one must be mindful of exit loads in mutual funds if selling early.
While tax harvesting can reduce tax liability, it's important to consider factors such as the settlement cycle, volatility of stocks, waiting for buying opportunities, and keeping track of transactions. Additionally, FIFO (First In, First Out) method is applied for calculating gains or losses when selling assets. Also be mindful about the charges and brokerage during these transactions.
Tax harvesting should ideally be done before March 31st to take advantage of tax benefits for the current financial year. Overall, tax harvesting is a prudent strategy for managing tax liabilities in investment portfolios.
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23 мар 2024
