Tax Loss & Gains Harvesting Can Zero Capital Tax
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- Tax loss harvesting lets investors sell loss‑making equities and carry forward the loss for up to eight assessment years to offset future capital gains.
- John sold X Company shares for a Rs 5 lakh long‑term gain and offset it by selling Y Company shares at a Rs 3.75 lakh loss, reducing his tax liability to zero.
- Harry sold 41 of his 100 A Company shares, lowering his long‑term gain to Rs 1.23 lakh—below the Rs 1.25 lakh exemption—so he owes no tax on the remaining shares.
- July 2024 budget raised short‑term capital gains tax to 20% and long‑term capital gains tax to 12.5% on gains above Rs 1.25 lakh, eliminating the previous exemption for short‑term gains.
- Balwant Jain notes that investors normally hold loss‑making stocks, but to claim a loss under Income Tax law they must sell the shares, which is the core of tax loss harvesting.
- Tax loss harvesting permits repurchasing the same stock in a different demat account on the same day to retain the loss claim, while intraday buy‑sell in the same account disqualifies the loss.
Why it matters: Investors can slash their capital‑gains tax bills to zero by applying loss‑harvesting or gains‑harvesting tactics, especially after the July 2024 budget lifted STCG to 20% and LTCG to 12.5% above Rs 1.25 lakh, making tax planning crucial for equity holders and can preserve more of their investment returns.
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