Minimise tax outgo with timely harvesting of capital gains & losses

DO IT BEFORE MARCH 31 TO CAPTURE BENEFITS IN THE CURRENT FINANCIAL YEAR

- SAIKAT NEOGI

FOR EQUITY INVESTORS, tax harvesting before March 31 is one of the most effective ways to optimise tax liability. Regular harvesting helps prevent large gains from building up and becoming taxable in future years.

If investors do not go for tax harvesting every year, they will pay more tax over time, as long-term gains accumulate beyond the annual exemption limit of ₹1.25 lakh. Investors also miss the opportunity to utilise available capital losses, which, if not harvested in time, cannot be set off in the current year.

Harvesting gains

Tax harvesting involves selling shares or equity mutual funds to book gains or losses, and subsequently reinvesting. Short-term capital losses (STCL) can be set off against any capital gains, while long-term capital losses (LTCL) can be set off only against long-term capital gains (LTCG). STCG (holdings less than 12 months) is taxed at 20% and LTCG (holdings over 12 months) over 1.25 lakh at 12.5%, without indexation.