Comprehensive Guide on tax harvesting for long-term capital gains (LTCG)

[CA Sunil Chahal]

Step 1: Identify LTCG investments

• Review your investment portfolio and identify assets held for more than 1 year that have shown gains. These qualify for LTCG.

Step 2: Check the LTCG exemption limit

• In India, LTCG up to ₹1 lakh on equity shares and equity-oriented mutual funds is exempt from tax.

Step 3: Assess potential tax liability

• If your LTCG exceeds ₹1 lakh on an investment, calculate the taxable amount (gains exceeding ₹1 lakh).
• Multiply the taxable LTCG amount by the LTCG tax rate (currently 10%).

Step 4: Decide on harvesting amount

• Considering step 3, determine how much LTCG you want to harvest (sell and book profits) to stay within the tax-exempt limit (₹1 lakh).

Step 5: Sell and reinvest

• Sell a portion of your chosen investment to realize the planned LTCG.
• Reinvest the proceeds from the sale into a similar or different investment (ideally, one you believe has growth potential).

Cautions:-

• Tax harvesting is a strategic approach, so you can consult a advisor for personalized guidance considering your portfolio and tax situation.
• Monitor your investments regularly to identify tax-harvesting opportunities.
• Remember, tax harvesting aims to optimize taxes, not market timing. Don't make impulsive investment decisions solely based on tax benefits.