What is Tax Loss/Gain Harvesting?
Tax gain/loss harvesting is
making use of a falling market to your benefit. It is possible that you
have stocks that are at loss at current market prices. You may consider
selling those stocks at a loss and offset this loss against the profits
that you have booked for the year. In case, you want to hold these
stocks to your portfolio, you may buy them on the next day or later to
retain it back.
We
are just a few days ahead of the financial year close and 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 by close to 1000 points from its peak
of 11171 to 10049.1 and so are the stocks which were bought at the
peak.
This might give us a good opportunity to sell.
What is the opportunity available in this fallen market?
Book short-term loss - sell stocks bought between April 2017 till date at a loss
Adjust loss against profits booked during the period between April 2017 till March 31st 2018.
Carry forward the loss (not adjusted in the current year) for next 7 consecutive years.
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 to retain them in the portfolio
Who can use this opportunity?
Investor
Trader
Who is a trader?
If you trade in F&O segment –know more about our Futures and Options plan for NRIs
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
Tax implication:
Investors:
% of Tax on short-term gains ~ 15%
Traders:
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
Example
An investor who has booked a profit of 1 lakh in 2017-18
Taxable Income
|
1 lakh
|
Scenario I – No loss is booked. Amount to be paid as Tax
|
15450 (@ 15.45%)
|
Scenario II – Short term loss are booked for
|
INR 90000
|
Net Taxable Income
|
10000 (100000 - 90000)
|
Net Tax to be paid
|
1545
|
ConversionConversion EmoticonEmoticon