Tax Harvesting

[Pahulpreet Kaur]

I have heard many times, people sell and buy their stocks at same price every year to save on taxes I think there is some logic that if your profit is less than 1 lakh in an year you dont have to pay tax on that. Can somebody elaborate on it?

 

[arjungoyal12]

In India, actually if you hold stocks for at least one year, the profit from selling them is considered a long-term capital gain (LTCG) which is taxed at the slab of 10% if the profit increases more than 1 lakh. But how they

 

[arjungoyal12]

I think tax harvesting refers to strategy where you sell stock which are at a loss to gain more from profitable shares and not pay the tax. You can show the loss & your profit comes down

 

[Pahulpreet Kaur]

There is an LTCG exemption of upto 1 lacs, using that limit to save taxes is tax exemption.

 

[Mohammed Danish]

Yes as per the income tax upto 1 lakh long term capital gain is exempt in an year

 

[Hema Kulkarni]

This is going to be a detailed answer
Before understanding Tax Harvesting, you need to understand 2 terms - LTCG and STCG.

If you hold your Equity Investments for > 1 years, the Gains on your Investments will be considered Long Term Capital Gains (LTCG). In India, LTCG on Equity Investments is 10%, and you need to pay LTCG only on Gains > 1 Lakhs.

If the holding period is < 1 Year, Short Term Capital Gains (STCG) of 15% will be applicable on entire Capital Gains.


Now Let’s understand Tax Harvesting

Very simply put, it’s a strategy to minimize tax outgo by consequent selling and buying of your Equity Investments. Let me explain how this works

Say you invested 1 Lakh on 1st March 2021 in Equity Mutual Fund and your portfolio increased to 1.8 Lakh on 1st March 2022.

This 80,000 Gain will be counted as LTCG and Zero Tax will be applicable on this (Since Gain is less than 1 Lakh). So it makes sense to Sell this portfolio, book profit of 80,000 and reinvest this money on 3rd or 4th of March.


Say you reinvest 1.8 Lakh on 4th March 2022 and your Portfolio increased to 2.7 Lakh on 4th March 2023 (Gains of 90,000).

This 90,000 Gain will be counted as LTCG and Zero Tax will be applicable on this (Since Gain is less than 1 Lakh). Again, it makes sense to Sell this portfolio, book gains of 90,000 and reinvest this money on 3rd or 4th of March.

This is called Tax Harvesting.


Had you not booked profits by selling, your total gains from 2021 would’ve been 1.7 Lakhs (2.7 Lakhs - 1 Lakh). And you’d have to pay 7,000 tax on these gains as per below calculations

Total LTCG = 1.7 Lakhs
Total Taxable Gains = 1.7Lakhs - 1 Lakh = 70,000
Tax applicable = 10%
Tax Outgo = 10% of 70,000 = 7,000

Here by following Tax Harvesting strategy, you saved tax of 7,000

Pro Tip - This feature is available in Kuvera App for FREE

 

[17ysaurabh]

This is going to be a detailed answer
Before understanding Tax Harvesting, you need to understand 2 terms - LTCG and STCG.

If you hold your Equity Investments for > 1 years, the Gains on your Investments will be considered Long Term Capital Gains (LTCG). In India, LTCG on Equity Investments is 10%, and you need to pay LTCG only on Gains > 1 Lakhs.

If the holding period is < 1 Year, Short Term Capital Gains (STCG) of 15% will be applicable on entire Capital Gains.


Now Let’s understand Tax Harvesting

Very simply put, it’s a strategy to minimize tax outgo by consequent selling and buying of your Equity Investments. Let me explain how this works

Say you invested 1 Lakh on 1st March 2021 in Equity Mutual Fund and your portfolio increased to 1.8 Lakh on 1st March 2022.

This 80,000 Gain will be counted as LTCG and Zero Tax will be applicable on this (Since Gain is less than 1 Lakh). So it makes sense to Sell this portfolio, book profit of 80,000 and reinvest this money on 3rd or 4th of March.


Say you reinvest 1.8 Lakh on 4th March 2022 and your Portfolio increased to 2.7 Lakh on 4th March 2023 (Gains of 90,000).

This 90,000 Gain will be counted as LTCG and Zero Tax will be applicable on this (Since Gain is less than 1 Lakh). Again, it makes sense to Sell this portfolio, book gains of 90,000 and reinvest this money on 3rd or 4th of March.

This is called Tax Harvesting.


Had you not booked profits by selling, your total gains from 2021 would’ve been 1.7 Lakhs (2.7 Lakhs - 1 Lakh). And you’d have to pay 7,000 tax on these gains as per below calculations

Total LTCG = 1.7 Lakhs
Total Taxable Gains = 1.7Lakhs - 1 Lakh = 70,000
Tax applicable = 10%
Tax Outgo = 10% of 70,000 = 7,000

Here by following Tax Harvesting strategy, you saved tax of 7,000

Pro Tip - This feature is available in Kuvera App for FREE

Is this applicable to salaried individuals with taxable salary?

 

[Hema Kulkarni]

Is this applicable to salaried individuals with taxable salary?

Absolutely

 

[Pahulpreet Kaur]

This is going to be a detailed answer
Before understanding Tax Harvesting, you need to understand 2 terms - LTCG and STCG.

If you hold your Equity Investments for > 1 years, the Gains on your Investments will be considered Long Term Capital Gains (LTCG). In India, LTCG on Equity Investments is 10%, and you need to pay LTCG only on Gains > 1 Lakhs.

If the holding period is < 1 Year, Short Term Capital Gains (STCG) of 15% will be applicable on entire Capital Gains.


Now Let’s understand Tax Harvesting

Very simply put, it’s a strategy to minimize tax outgo by consequent selling and buying of your Equity Investments. Let me explain how this works

Say you invested 1 Lakh on 1st March 2021 in Equity Mutual Fund and your portfolio increased to 1.8 Lakh on 1st March 2022.

This 80,000 Gain will be counted as LTCG and Zero Tax will be applicable on this (Since Gain is less than 1 Lakh). So it makes sense to Sell this portfolio, book profit of 80,000 and reinvest this money on 3rd or 4th of March.


Say you reinvest 1.8 Lakh on 4th March 2022 and your Portfolio increased to 2.7 Lakh on 4th March 2023 (Gains of 90,000).

This 90,000 Gain will be counted as LTCG and Zero Tax will be applicable on this (Since Gain is less than 1 Lakh). Again, it makes sense to Sell this portfolio, book gains of 90,000 and reinvest this money on 3rd or 4th of March.

This is called Tax Harvesting.


Had you not booked profits by selling, your total gains from 2021 would’ve been 1.7 Lakhs (2.7 Lakhs - 1 Lakh). And you’d have to pay 7,000 tax on these gains as per below calculations

Total LTCG = 1.7 Lakhs
Total Taxable Gains = 1.7Lakhs - 1 Lakh = 70,000
Tax applicable = 10%
Tax Outgo = 10% of 70,000 = 7,000

Here by following Tax Harvesting strategy, you saved tax of 7,000

Pro Tip - This feature is available in Kuvera App for FREE

Thanks for this....Are there any annual or maintenance charges on Kuvera App? and How is your experience on it?

 

[17ysaurabh]

Hey guys, I found a great video of Ankur Warikoo on Tax Harvesting. He has explained the concept really well covering all the ideas.
Feel free to check it out:

 

[17ysaurabh]

Hey guys, I found a great video of Ankur Warikoo on Tax Harvesting. He has explained the concept really well covering all the ideas.
Feel free to check it out:

It seems like the link I've shared in the comment has been removed. Any reasons for doing so?

 

[Pahulpreet Kaur]

It seems like the link I've shared in the comment has been removed. Any reasons for doing so?

I think only bekifaayati youtube/insta links are approved by the moderator to share on this platform. But thanks we can search and get that video

 

[drsanketmodh]

I also do tax harvesting.

My question is if we wait for 2to 3 days to reinvest, and if the market is on bull run absolutely, don't we lose opportunity of compounding of stock.

What I personally do is
sell the stock in one demat account and at same time buy same quantity in other demat account. (Bcz doing in same account will be considered intraday and as speculative income i guess)
Is it good practice?

This is going to be a detailed answer
Before understanding Tax Harvesting, you need to understand 2 terms - LTCG and STCG.

If you hold your Equity Investments for > 1 years, the Gains on your Investments will be considered Long Term Capital Gains (LTCG). In India, LTCG on Equity Investments is 10%, and you need to pay LTCG only on Gains > 1 Lakhs.

If the holding period is < 1 Year, Short Term Capital Gains (STCG) of 15% will be applicable on entire Capital Gains.


Now Let’s understand Tax Harvesting

Very simply put, it’s a strategy to minimize tax outgo by consequent selling and buying of your Equity Investments. Let me explain how this works

Say you invested 1 Lakh on 1st March 2021 in Equity Mutual Fund and your portfolio increased to 1.8 Lakh on 1st March 2022.

This 80,000 Gain will be counted as LTCG and Zero Tax will be applicable on this (Since Gain is less than 1 Lakh). So it makes sense to Sell this portfolio, book profit of 80,000 and reinvest this money on 3rd or 4th of March.


Say you reinvest 1.8 Lakh on 4th March 2022 and your Portfolio increased to 2.7 Lakh on 4th March 2023 (Gains of 90,000).

This 90,000 Gain will be counted as LTCG and Zero Tax will be applicable on this (Since Gain is less than 1 Lakh). Again, it makes sense to Sell this portfolio, book gains of 90,000 and reinvest this money on 3rd or 4th of March.

This is called Tax Harvesting.


Had you not booked profits by selling, your total gains from 2021 would’ve been 1.7 Lakhs (2.7 Lakhs - 1 Lakh). And you’d have to pay 7,000 tax on these gains as per below calculations

Total LTCG = 1.7 Lakhs
Total Taxable Gains = 1.7Lakhs - 1 Lakh = 70,000
Tax applicable = 10%
Tax Outgo = 10% of 70,000 = 7,000

Here by following Tax Harvesting strategy, you saved tax of 7,000

Pro Tip - This feature is available in Kuvera App for FREE

 

[drsanketmodh]

In stock market, for short term trading , suppose aaj maine 100x100rs. vala stock liya. 1 week bad 150rs price hai . I sold and at same time other demat me bought. (15% STCG + transaction charges + taxes + brokerage) ke alava koi concern na ho to profit book karna a66a hai ya nahi?

 

[Anil Kumar]

I have heard many times, people sell and buy their stocks at same price every year to save on taxes I think their is some logic that if your profit is less than 1 lakh in an year you dont have to pay tax on that. Can somebody elaborate on it?

This is also done if their overall income is taxable
So if they are in loss in say x,y,z stocks they will book loss so that their overall income comes down and hence less tax or no tax if you do it properly
They will be at the same price on those stocks but by doing this they saved tax money

 

[Tax with Ria]

I have heard many times, people sell and buy their stocks at same price every year to save on taxes I think their is some logic that if your profit is less than 1 lakh in an year you dont have to pay tax on that. Can somebody elaborate on it?

Hello Pahulpreet Kaur,
Under section 112A of Income Tax Act, 1961, any long term capital gain(LTCG) on equity shares, unit of equity oriented mutual fund, unit of business trust is exempt upto Rs. 100000 ( aggregate), but exceeding 100000 it is taxable @ 10% without any indexation benefit.
LTCG arises when you sell any listed equity shares or units of equity oriented funds after 1 year. If these are held for less than 1 year then Short term capital gain(STCG) arises taxable @ 15% without any exemption.

 

[Tax with Ria]

For instance
Eg-1. You purchased 110 RIL shares at 2000 on 1 April, 2023 and sold it on 2 April, 2024 for 3000, now your LTCG will be - (3000-2000)*110= 110000.
Tax on LTCG - (110000-100000)*10%= 1000

Eg-2. You purchased 110 RIL shares at 2000 on 1 April, 2023 and sold it on 31 March, 2024 for 3000, now your STCG will be - (3000-2000)*110= 110000.
Tax on STCG - 110000*15%= 16500

Eg-3
You purchased 110 RIL shares at 200 on 1 April, 2003 and sold it on 4 April, 2024 for 3000. Fair market value of such shares as on 31.1.2018 is 1200.now your LTCG will be

Sale consideration (110*3000). 330000
(-) Indexed Cost of Aquisition 421432
(132000*348/109). (B) __________
Long term capital loss. -91431
------------
HENCE LONG TERM CAPITAL LOSS CANNOT BE TAXED AND THIS LOSS IS TO BE CARRY FORWARD TO NEXT YEAR.
Cost of acquisition=higher of A* or Purchase price i.e. 132000 or 22000(110*200)


calculation of A (see note 3 below)
Sale consideration
330000
or
FMW as on 31.1.2018
132000, whichever is lower(A)
i.e 132000

calculation of B
Cost of acquisition* Cost inflation index of PY in which asset is sold ________________________________________________
Cost inflation index in which asset was first purchased.

Note-
1. For claiming exemption of 100000, your shares must be listed at the time of purchase and sale along with paid STT.
2. Shares must be held for atleast 1 year from the date of purchase to avail exemption of LTCG.
3. If listed equity shares was purchased on or before 31.1.2018 then Cost of Acquisition will be as follows
COA= Higher of A or purchase price

A
Sale consideration.
or. [Lower]
FMV as on 31.1.18

 

[Anil Kumar]

For instance
Eg-1. You purchased 110 RIL shares at 2000 on 1 April, 2023 and sold it on 2 April, 2024 for 3000, now your LTCG will be - (3000-2000)*110= 110000.
Tax on LTCG - (110000-100000)*10%= 1000

Eg-2. You purchased 110 RIL shares at 2000 on 1 April, 2023 and sold it on 31 March, 2024 for 3000, now your STCG will be - (3000-2000)*110= 110000.
Tax on STCG - 110000*15%= 16500

Eg-3
You purchased 110 RIL shares at 200 on 1 April, 2003 and sold it on 4 April, 2024 for 3000. Fair market value of such shares as on 31.1.2018 is 1200.now your LTCG will be

Sale consideration (110*3000). 330000
(-) Indexed Cost of Aquisition 421432
(132000*348/109). (B) __________
Long term capital loss. -91431
------------
HENCE LONG TERM CAPITAL LOSS CANNOT BE TAXED AND THIS LOSS IS TO BE CARRY FORWARD TO NEXT YEAR.
Cost of acquisition=higher of A* or Purchase price i.e. 132000 or 22000(110*200)


calculation of A (see note 3 below)
Sale consideration
330000
or
FMW as on 31.1.2018
132000, whichever is lower(A)
i.e 132000

calculation of B
Cost of acquisition* Cost inflation index of PY in which asset is sold ________________________________________________
Cost inflation index in which asset was first purchased.

Note-
1. For claiming exemption of 100000, your shares must be listed at the time of purchase and sale along with paid STT.
2. Shares must be held for atleast 1 year from the date of purchase to avail exemption of LTCG.
3. If listed equity shares was purchased on or before 31.1.2018 then Cost of Acquisition will be as follows
COA= Higher of A or purchase price

A
Sale consideration.
or. [Lower]
FMV as on 31.1.18

For instance
Eg-1. You purchased 110 RIL shares at 2000 on 1 April, 2023 and sold it on 2 April, 2024 for 3000, now your LTCG will be - (3000-2000)*110= 110000.
Tax on LTCG - (110000-100000)*10%= 1000

Eg-2. You purchased 110 RIL shares at 2000 on 1 April, 2023 and sold it on 31 March, 2024 for 3000, now your STCG will be - (3000-2000)*110= 110000.
Tax on STCG - 110000*15%= 16500

Eg-3
You purchased 110 RIL shares at 200 on 1 April, 2003 and sold it on 4 April, 2024 for 3000. Fair market value of such shares as on 31.1.2018 is 1200.now your LTCG will be

Sale consideration (110*3000). 330000
(-) Indexed Cost of Aquisition 421432
(132000*348/109). (B) __________
Long term capital loss. -91431
------------
HENCE LONG TERM CAPITAL LOSS CANNOT BE TAXED AND THIS LOSS IS TO BE CARRY FORWARD TO NEXT YEAR.
Cost of acquisition=higher of A* or Purchase price i.e. 132000 or 22000(110*200)


calculation of A (see note 3 below)
Sale consideration
330000
or
FMW as on 31.1.2018
132000, whichever is lower(A)
i.e 132000

calculation of B
Cost of acquisition* Cost inflation index of PY in which asset is sold ________________________________________________
Cost inflation index in which asset was first purchased.

Note-
1. For claiming exemption of 100000, your shares must be listed at the time of purchase and sale along with paid STT.
2. Shares must be held for atleast 1 year from the date of purchase to avail exemption of LTCG.
3. If listed equity shares was purchased on or before 31.1.2018 then Cost of Acquisition will be as follows
COA= Higher of A or purchase price

A
Sale consideration.
or. [Lower]
FMV as on 31.1.18

Ria ji described it very deeply with examples.

If you still don’t understand then
First as for selling and buying at same price to show loss that will bring down their taxable income to as minimum as for the amount loss is booked
This loss can be carry forwarded for the next assessment year

For the second one
Very simple
LTCG with 1 Lakh exemption.

 

[Shantanu28]

For instance
Eg-1. You purchased 110 RIL shares at 2000 on 1 April, 2023 and sold it on 2 April, 2024 for 3000, now your LTCG will be - (3000-2000)*110= 110000.
Tax on LTCG - (110000-100000)*10%= 1000

Eg-2. You purchased 110 RIL shares at 2000 on 1 April, 2023 and sold it on 31 March, 2024 for 3000, now your STCG will be - (3000-2000)*110= 110000.
Tax on STCG - 110000*15%= 16500

Eg-3
You purchased 110 RIL shares at 200 on 1 April, 2003 and sold it on 4 April, 2024 for 3000. Fair market value of such shares as on 31.1.2018 is 1200.now your LTCG will be

Sale consideration (110*3000). 330000
(-) Indexed Cost of Aquisition 421432
(132000*348/109). (B) __________
Long term capital loss. -91431
------------
HENCE LONG TERM CAPITAL LOSS CANNOT BE TAXED AND THIS LOSS IS TO BE CARRY FORWARD TO NEXT YEAR.
Cost of acquisition=higher of A* or Purchase price i.e. 132000 or 22000(110*200)


calculation of A (see note 3 below)
Sale consideration
330000
or
FMW as on 31.1.2018
132000, whichever is lower(A)
i.e 132000

calculation of B
Cost of acquisition* Cost inflation index of PY in which asset is sold ________________________________________________
Cost inflation index in which asset was first purchased.

Note-
1. For claiming exemption of 100000, your shares must be listed at the time of purchase and sale along with paid STT.
2. Shares must be held for atleast 1 year from the date of purchase to avail exemption of LTCG.
3. If listed equity shares was purchased on or before 31.1.2018 then Cost of Acquisition will be as follows
COA= Higher of A or purchase price

A
Sale consideration.
or. [Lower]
FMV as on 31.1.18

You gave the info. Very well which is understandable
But I have a question that if the stock we are holding is at all time high & due to minor news & some technical analysis it is predictable that the market will crash or the particular stock we r holding may get correct. So what precautions should we take. Shall we book the profit & give the tax or hold it to save the tax

 

[Tax with Ria]

You gave the info. Very well which is understandable
But I have a question that if the stock we are holding is at all time high & due to minor news & some technical analysis it is predictable that the market will crash or the particular stock we r holding may get correct. So what precautions should we take. Shall we book the profit & give the tax or hold it to save the tax

See it totally depends on your risk taking capacity. If it's good, then you may hold it otherwise you can put a stop loss to your investment