Tax Harvesting: It’s Not As Difficult As You Think

What is Harvesting?

Harvesting is the process of gathering a ripe crop from the fields

Reaping is the cutting of grain or pulse for harvest

History of Tax Harvesting

-Sell loss making shares & set off against gain form shares with this we save tax.

-long-term capital gains (LTCG) made on the sale of equity shares, and equity funds were completely tax-free in your hands before March 2018. However, the amendment made in the Union Budget 2018 has changed the tax treatment of LTCG on sale of listed equity shares and equity funds.

-1 April 2018, an LTCG of more than Rs 1 lakh will be taxed at the rate of 10% without the benefit of indexation. Compared to that, short-term capital gains (STCG) are taxed at a rate of 15%. In this case, you can employ tax- loss harvesting to reduce the tax liability on both LTCG and STCG.

Short term capital gain in terms of shares (STT Paid)

Sell shares within 12 months from the buying date

E.g. Buy Date : 30/10/2022

Sell Date : 13/06/2023

Long term capital Gain in terms of share (STT Paid) –

Sell shares beyond the 12 months from the purchase date

E.g. Buy Date : 09/11/2022

Sell Date : 21/07/2024

Six Scenarios of tax loss harvesting

1. Short term Capital Gain – 100000 * 15% = 15000

Short term Capital Loss – 80000

Total Gain 20000 *15% = 3000

2. Long term capital gain – 50000 (exemption upto 1 Lakh)

Long term capital loss – 40000 c/f for 8 years

3. Long term capital gain – 140000 – 100000 = 40000

Long term capital loss – 40000

No tax

4. Short term Capital Gain – 100000 * 15% = 15000

Long term capital loss – 80000 C/f 8 years

5. Long term capital gain = 140000 – 100000 = 40000

Short term capital loss – 40000

No tax

6. Long term capital Gain in portfolio – 300000

Sell 1 lakh on first year buy same shares on same/next day

Sell 1 lakh on Second year buy same shares on same/next day

Sell 1 lakh on Third year buy same shares on same/next day

Points to be remembered

• Sold shares must buy on same day to avoid price fluctuations.
• Shares will sell on FIFO basis
• Tax harvesting can be done throughout the year
• Loss set off rules can be kept in mind
• Consult you CA before doing tax harvesting

Set off rules as per Income Tax Act 1961

• Short term capital loss set off against short term capital gain & long-term capital gain (1,5)
• long term capital loss set off against long term capital gain (2,3,4)
• F&O Loss set off against Both gains
• Short term capital loss/long term capital loss set off against F & O Gain?