Time For Tax-Loss Harvesting? Here’s How You Can Do It
Tax-loss harvesting is a strategy to offset losses against capital gains and reduce tax liability.
Tax-loss harvesting is a strategy to offset losses against capital gains and reduce tax liability.
Tax Loss Harvesting
Tax-loss harvesting involves selling securities at a loss to offset capital gains from other securities, thus lowering tax liability. According to income tax rules, any profit or gain from transferring a capital asset during the year is taxed under the ‘Capital Gains’ head. It also stipulates that a loss under the capital gains head can be adjusted against a capital gain in the same year or carried forward in subsequent years in case of any unadjusted capital loss.
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As the financial year ends, it is usually the time to review the investments and adjust them to optimise tax liability. This exercise is essential because adjusting gains with losses reduces the net capital gain and, thus, the taxpayer’s tax liability. For example, suppose a person earns a profit of Rs 10,000 from selling a security and incurs a loss of Rs 2,000 from selling another security. In that case, the tax will be payable on the net capital gain of Rs 8,000 instead of Rs 10,000.
Also Read: Too Many Investments, Bank Accounts, And Loans—Excesses Can Be Harmful To Personal Finance!
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Tax harvesting is possible only in case of capital gains and losses. Capital gain or loss means any gain or loss from transferring capital assets like shares, mutual funds, bonds, land, buildings, etc., which are subject to tax under capital gains in the income tax.
STCG can be adjusted with STCG and LTCG, while LTCG can only be set off against LTCG. Capital losses reported in the income tax return filed before the due date can be carried forward for up to eight successive years from the year the loss was incurred.
Also Read: Four Tips For Single Women Planning For Retirement
In short, plan according to your goal and use tax harvesting judiciously to reduce tax liability and enhance the portfolio. If you have doubts, seek assistance from chartered accountants, certified financial planners, etc.
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Section 80D of the Income Tax Act offers deductions for health insurance premiums and medical expenses incurred on senior citizens.
After Gadkari, other ministers, including those from the Opposition parties have called for removal of GST on medical and life insurance policies. For senior citizens already grappling with limited income sources and high premiums on health insurance products, such a step could prove to be a boon and a life saver
Income sources dealt with under Section 56 of the Income Tax Act include dividends, one-time payments, advance payments, severance packages, and revenue from renting machinery.
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