Tax loss harvesting:
Tax harvesting (more accurately called tax-loss harvesting) is a strategy used in investing to reduce your tax liability by using losses.
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📊 What it means (simple explanation)
Tax harvesting is when you:
• Sell an investment at a loss
• Use that loss to offset profits (gains) from other investments
• This reduces the tax you have to pay
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🧠 Example
Imagine:
• You made ₹50,000 profit in stocks
• But you also have another stock at ₹20,000 loss
👉 If you sell the loss-making stock:
• Taxable profit = ₹50,000 – ₹20,000 = ₹30,000
• You pay less tax
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📌 Types of tax harvesting
1. Short-Term Capital Loss (STCL)
• Can offset both short-term and long-term gains
2. Long-Term Capital Loss (LTCL)
• Can offset only long-term gains
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🇮🇳 How it works in India
Under Income Tax Act, 1961:
• Losses can be carried forward for 8 years
• You must file your ITR on time to claim it
• You cannot offset:
• Stock losses with salary income ❌
• Only capital gains ✔️
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⚠️ Important points
• Don’t sell just for tax benefit → investment logic matters
• Consider:
• Brokerage charges
• Market movement after selling
• In India, there is no strict “wash sale rule” like in the US, but frequent manipulation may attract scrutiny
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💡 Simple strategy
• Review portfolio near financial year end (March)
• Book losses strategically
• Reinvest in similar (not identical risky timing) assets if needed
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🧾 Final takeaway
Tax harvesting = smart way to save tax, not a way to make profit.