Tax loss harvesting: Investors’ concern has increased after the fall in the shares of Corona and now Adani Group. The combined market cap of 10 companies of Adani Group has come down a lot. As a result, investors in these companies have suffered huge losses. If you have also suffered a financial loss in this upheaval of the stock market, then you can compensate it to some extent through tax loss harvesting. Let us tell you today what is tax loss harvesting and what are its benefits.
When an investor invests directly in the stock market or mutual fund, he incurs capital gain or capital loss. The investor has to pay tax on capital gains. This tax is decided on the basis of the holding period of your investment. If an investor incurs losses on the money invested in the stock market or mutual funds, he can reduce his tax liability through tax loss harvesting. You can avoid liability by showing your loss while filing income tax return.
What is Tax Loss Harvesting?
According to financial experts, tax loss harvesting is a safe way for investors in the stock market to avoid tax on capital gains. For example, if an investor has made a profit by investing in the stock market in a financial year and withdraws that money, he will have to pay long term or short tax at the end of the financial year. On the other hand, if that investor has suffered a loss in some shares and sells those shares, then he can get tax exemption by adjusting his gains and losses.
Complete Mathematics of Tax Loss Harvesting
You can understand the exemption on tax loss harvesting with a simple example. If an investor has made a short term capital gain of Rs 1 lakh in a financial year, then he will have to pay tax of Rs 15,000 at the rate of 15 per cent. On the other hand, if that investor sells the shares for Rs 25,000 after incurring a loss of Rs 50,000, then while filing ITR, he can get tax exemption by showing a loss of Rs 25,000 through tax loss harvesting.