What is Tax Loss Harvesting?
Tax Loss Harvesting is the act of offsetting gains against losses to minimise taxes that need to be paid either for short term or long term. This allows investors to book profits for well performing funds and exit poor performing funds from their portfolio while still being tax efficient. Remember that you can only offset short term gains with short term loss, and long term gains with long term loss. Equity and debt funds have different short term and long term tax schedules
In April 2018, the Government of India introduced a new taxation rule based on which Long Term Capital Gains (LTCG) on Mutual Funds would be tax free for the first Rs. 1 Lakh, and taxable for any other LTCG profits beyond that amount. Hence where mutual funds are concerned, an additional opportunity for Tax Loss Harvesting arises when investors sell units of their Mutual Funds which qualify for LTCG to book profits upto Rs. 1 Lakh or more, wherein the first Rs. 1 Lakh of profit is tax free.
Setup a call with our advisors if you are looking to take advantage of Tax Loss Harvesting for the financial year.
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