Tax-Loss Harvesting: How Stock Losses Cut MF Tax Bills — SkimNews
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- Tax-loss harvesting lets investors sell loss-making stocks to offset eligible capital gains, with short-term capital losses set off against both short-term and long-term gains, while long-term losses can only offset long-term gains
- Capital losses from listed shares can be set off only against equity-oriented mutual fund gains; equity MFs are classified as schemes investing more than 60% of total assets in equity shares
- Worked example: ₹1,00,000 in short-term capital gains at a 20% tax rate would owe ₹20,000; selling stocks with ₹80,000 in unrealized losses to realize them drops net STCG to ₹20,000, cutting the tax bill to ₹4,000 — a ₹16,000 saving
- Unused capital losses can be carried forward for up to eight assessment years after the year the loss was incurred, provided the taxpayer files their ITR within the prescribed due date
- Late ITR filing forfeits the carryforward benefit entirely, meaning those capital losses cannot be set off against future gains in subsequent years
- Caveat: harvesting should be pursued only when loss-making securities show no realistic scope of recovery in the near future
Why it matters: The ₹16,000 tax saving on a ₹1,00,000 gain shows how material this strategy can be for retail investors — but the eight-year carryforward is forfeited entirely if the ITR is filed late, making timely filing the single binding condition for preserving the strategy's long-term value.
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