Tax Harvesting: According to tax experts, tax harvesting is the most effective way to reduce the tax liability on investment in equity.
Tax Harvesting: Despite heavy stress at the global level for about one and a half months, in this financial year 2021-22 till March 21, the domestic equity benchmark index Sensex has strengthened 15.7 percent and Nifty 16.5 percent. BSE Midcap has also gained 17.3 per cent and BSE Smallcap has also gained 34.7 per cent during this period. Due to this boom, the profits of equity and equity mutual fund investors increased. With just a week left for this financial year to end, equity investors should focus on tax harvesting and reducing the Long Term Capital Gains (LTCG) tax liability.
According to tax experts, tax harvesting is the most effective way to reduce the tax liability on investments in equities. However, he says that the profits should be reinvested immediately so that they can take the compounding benefit.
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What is Tax Harvesting?
Tax harvesting is the most effective way to reduce tax liability in equity investing. In this, profit is made by selling some stocks or some holdings of mutual funds and after reinvesting this profit, compounding benefit is taken. With effect from April 1, 2018, it has become a rule that investors have to pay long term capital gains tax at the rate of 10 per cent without indexation benefit on profits exceeding Rs 1 lakh in any one financial year. In such a situation, according to Neha Malhotra, director of Nangia Andersen LLP, it is necessary to keep LTCG from equity less than Rs 1 lakh in a financial year to reduce tax liability and get tax-free returns.
Here are the rules related to tax
Short-term capital gains tax of 15 per cent will be payable on the gains made after the sale of shares or equity mutual fund units listed on the stock exchange after April 1, 2018 for less than 12 months, but if the holding period is more than 12 months. If the amount exceeds Rs 1 lakh, long term capital gains tax at the rate of 10 per cent without indexation benefit will be liable to be paid. In this year’s Union Budget, the rates of surcharge on LTCG for high net worth individuals earning more than 20 million have been given relief and it has been reduced to a maximum of 15 per cent instead of 25 per cent or 37 per cent.
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Capital Loss Harvesting
Like profits, losses are also harvested. Long term capital loss can be set off from other long term capital gains. Short-term capital loss can be set off from short-term or long-term capital gains as per the provisions of the Income Tax Act. If you are not able to set off, then you can carry forward it till the next eight assessment years. However, it is necessary to file ITR for carry forward.
,Article: Saikat Neogi)