How to save tax on capital gains | Ultimate guide to tax harvesting and tax-loss harvesting
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- Опубліковано 13 чер 2024
- FY24 has been a bumper year for equity investors. Many investors would have also booked some gains. But since capital gains from equity are subject to tax, they will also have to part with some of them. Tax harvesting and tax-loss harvesting can help reduce the tax or even nullify it.
Tax harvesting is also called tax-gain harvesting. It came into being after the introduction of the long-term capital gains tax on equity and the subsequent exemption of gains up to Rs 1 lakh from taxation. In this video, we have explained how you can use it to lower your tax outgo.
Tax-loss harvesting has an even wider scope than tax harvesting. Tax-loss harvesting is deliberately booking losses to lower your capital gains and hence tax. You can even carry forward your losses for up to eight financial years. In the video, we have explained how you can use tax-loss harvesting to reduce your tax.
But there are certain things you should keep in mind while practising tax harvesting and tax-loss harvesting. We have discussed them in this video as well.
Chapters
00:00 Introduction
01:41 Tax-Gain Harvesting
07:14 Tax-Loss Harvesting
10:52 Things to keep in mind while using tax harvesting
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Thank you, Rajat, I am grateful for the thoughtful and comprehensive content you've provided.
Things to keep in mind is very important part. No one talks about it. Thanks Rajat for sharing this.
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This was an excellent presentation with great visuals. Tax harvesting has always been a topic which I avoided because I thought I would never understand but I am wrong here. Now I'm thinking which one of my schemes to sell off 😂😂
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Great sir. You have explained about tax harvesting in an excellent manner. Thank you sir
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Amazing explaination
Very well explained. Thank you
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Quite educational, thank you!
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Excellent presentation of a great concept. Very useful
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Thank you Rajat for sharing this. It's helpful
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Superb video. Thanks 👍🏻
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Thanks for providing valuable info. But from 9:14 to 9:26, explanation contradicts with what is displayed on the screen. Could you please let us know which is correct.
Very useful video. Pls add some of these tax harvesting features in the app itself. With tech, it should provide the right suggestion automatically based on our transaction data.
Same day purchase and sale are not possible in stocks, as it would result in business income, should keep a gap of 1 day, but in mutual funds we can buy and sell on the same day- subject to liquidity.
Hello, thanks for sharing this worthy perspective. We are sure it will benefit many other viewers.
Very good 👍
Thank you 👍
When we are selling the MF units on FIFO method and buying it again for the purpose tax havesting… we will be buying the units at a higher Nav and hence breaking the compounding effect. I believe compounding would be hit
Wat about stt you will pay every time you buy again
Good explanation. But transaction cost in a direct equity MF will increase cost? Usually on same day, purchase NAV > sell NAV resulting in reduced number of units?
If I sell the nav or stock price to reinvest again the new nav or stock price at which I wl have to buy them again will be higher(increased over 8-9 months depending on the time of buying and selling) leading to buying of lesser number of units....so is it actually useful?
Bhai ye sb to tb btao agr koi app stcg units and ltcg units separately dikhati ho, no app in current market separately shows them, for normal customer it’s hard to track manually😢
Sir please answer my query
In Tax harvesting
If I sell before 1 year then I will invite STCG which is 15% then don’t you think it is worst then paying LTCG
Given the situation, can we still sell Equity on 26/March and re-invest on 28/March..
Can i sell and buy on the same day in different accounts
Its a great concept to make videos on. But not practical and necessary if you are a long term investor and have multiple funds with multiple SIPs.
True
1 year meaning 365 days? Or march 2023 to april 2024? Or after 365 days we can sell and rebuy , I'm asking about LTCG.
@ETMoney: does your ETMoney app offers this feature? Tax harvesting and tax loss harvesting?
Not at all
@etmoney it will be better if you can show at least some of information on the withdrawal page itself. Such as long term units and short term units and current financial year long term gain and loss as well short term. So that users can take better decisions by themselves.
Hello, these are currently not available on the ET Money app but our product team would sure like to consider including them.
Hello@@SukoonWaliYaadein Thanks for your suggestion. Will pass it on to our product team.
Kuvera has the feature
How would tax gain harvesting work for SIPs done in ELSS mutual funds?
Hi Sir, am having few SIP running through ET money for the last 19 months, can I do tax harvesting ? if so how
Really grateful to etmoney for such knowledge boosting Videos for Non financial people like us.
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Is tax harvesting a viable strategy for reducing tax liabilities in both bull and bear markets, or are there specific market conditions where it's more advantageous?
Hello, tax harvesting has nothing to do with bull or bear markets. It depends on your portfolio gains. But even if there is a net loss in your portfolio, it can be realised and carried forward so that it can be adjusted against any future gains. But then that's not tax harvesting but tax-loss harvesting.
Very useful information, is it applicable for US funds or stocks as the ltcg is 3 years
Hello, for overseas stocks, tax harvesting won't be applicable as overseas gains aren't subject to the exemption limit of Rs 1 lakh. However, one can use tax-loss harvesting to reduce one's taxable gains.
Suppose "I have invested ₹1.5 lakhs each in two mutual funds, Parag and Kotak, totaling ₹3 lakhs in 2024.Considering Long-Term Capital Gains (LTCG), and an annual interest earned per year as follows:2025: ₹50,000 each from Parag and Kotak2026: ₹50,000 each from Parag and Kotak2027: ₹50,000 each from Parag and Kotak2028: ₹50,000 each from Parag and KotakIf I sell only Kotak in 2025, realizing ₹50,000 in gains, how much tax would be implemented? If I sell only Parag in 2026, realizing ₹1 lakh in gains, what would be the taxable amount?"
For NRO investors is this exemption of 1 lakh applicable?
How this will work with Sip???
How can one be sure to get 12% linear returns in equity y-o-y as used by you in this video. Returns are lumpy.
Hello, you are right. But we have taken that assumption just for illustration purposes. The real-life scenario would be very different.
@ETMoney can the ET money app have feature of goal so that funds can be marked for a particular goal.
Good explanation, but I feel this is very difficult to execute in reality.
We would also never know our true XIRR as the money would be coming out and going in every year. Also, in most of the cases, we often choose to put more money in the same fund as the year progresses. (at least what I do).
So, It will become difficult to keep track of all the transactions.
As I understand, XIRR is not affected since this covers debit/credits in the calculation. ETmoney can clarify.
@@arup76 XIRR is not affected, that's right. But we would never know our true XIRR as we would be regularly taking in and out. Any platform would show XIRR based on the new/latest invested value, and not on the initial invested value.
Hello, we fully understand your perspective. And that's why towards the end of the video, we suggested that you should assess if tax harvesting is useful to you or not. If it creates confusion or becomes too difficult to carry out, one can always give it a miss.
What's the need to track our txns? We need to decide whether tracking xirr beneficial or paying less tax is beneficial. End of the day, the corpus we have is more important than xirr
In tax harvesting example, why should we book profit more than 1 lac and pay LTCG on that as well from year 6? Does it make a difference if we claim capital gains of only upto 1 lac from year 6 to 10, and claim the total capital gains only in year 10, and pay tax on that? I believe we should pay the same tax in both the cases, right?
Hello, thanks for sharing your perspective. The idea of the illustration is to demonstrate how tax harvesting works. You can always make slight changes to it based on your requirements.
What about exit load?
I had invested in regular funds over several years. Only recently I started investing in direct funds. What approach should I follow to move from the regular to direct fund’s without losing out much on taxes? Is it wise to move to direct funds and incur tax now or let the investments remain in the regular funds?
Hi Venkat,
Unfortunately, there is no one correct way. It will all depend on how much tax you will incur, how are those funds performing, etc. One way to approach is when you go about cleaning up your portfolio, you make the move.
Perfect teaching 👍
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how to monitor all this
Hi,
I have invested in ELSS fund. Can I switched to Growth fund without hampering the compounding? The three years locking period is completed.
Yes definitely, once your locking period is over you can invest in any direct growth equity scheme. Compounding will not be affected.
Redeeming a mutual fund will take 1 week. Then invest. What if there is some spread in this one week? Govt should have simply provided carry forwarding of that 1 L per year tax exemption on LTCG.
@ETMoney, Do we have to pay tax if stocks are not sold at all.
Do you do the tax filing for the income from stock markets.
tax will only be deducted at the of selling the stock.
@@NageshSinghTomer Thanks for the reply. Ok, So for income tax it has to be paid separately during filing itr , is that correct ?
India shelter will be my 1s choice
Rs 100000/- exemption limit is including Share andMF? Or for Share 1lac and MF1lac .
Hello, Rs 1 lakh is the overall exemption for equity, be it stocks or equity funds.
I did not understand the concept of tax harvesting in SIP. can you break it down with an example as done with Lumpsum?
Hello, thanks for letting us know your concern. Will share it with our content team.
It's an inbuilt option in kuvera. Check it out
If we invest the gains into real estate or some other investment is there a need to pay taxes?
Hello, capital-gain bonds or 54EC bonds can help you save long-term capital-gain tax. However, you must do your own due diligence to assess if these bonds are suited to you or not.
I have one question: If you reedem your fund every year doesn't it attract STCG for that FY??
One more question is how this system works for some fund where I am doing SIP?
I'm also thinking the same
On top of these I guess we can use benifit of indexation????
Hello, if a product qualifies for indexation benefits and you sell it after the required duration, that can help you reduce your tax outgo. But currently, no domestic equity product enjoys indexation. Even debt funds have lost this advantage.
Is there a plan to release Hindi version of this video on ET Money Hindi channel ? If yes, is there any timeline ?
Hello, the Hindi version of this video has been released. Please check: ua-cam.com/video/tnXLrgZDAv8/v-deo.html
Tax loss harvesting useless if networth is small, it is just delay in paying taxes. So if i delay paying 6L tax by one year then my additional gains on those 6L can be 50k . But in small investment portfolio it's just no use. Because there will be a change in NAV units accumulation in the buy sell process.
One mistake. Ltcg can be booked after 3 year
So the first two year one cant book profit without paying stcg
Can the LTCG on MFs be invested in 54 EC bonds to avoid tax?
Hello, yes, you can do so. However, you must assess the suitability of these bonds for yourself.
Can you please explain the tax gain harvesting on international equity mutual fund?
Hello, tax-gain harvesting isn't possible for international equity funds as the gains from them aren't exempt up to Rs 1 lakh. It's only domestic equity gains that enjoy this tax treatment. However, you can use tax-loss harvesting for international equity.
@@ETMONEY Thank you for the reply
Is LTCG 10% tax is fixed ? Irrespective of my regular tax slab ?
Yes
@@ETMONEY That means if my icnome is only from stock market specifically in mutual funds even though the profit is more than 10L still I will pay 10% tax right ?
How to sell mutual fund so that gain is less than 1 lacs? Calculation?
Yes. Apps like Kuvera offer premium services (around 500 INR, in the case of Kuvera, if I remember correctly) to activate a feature that shows you calculations for the purposes of optimising tax gain harvesting. But this only makes it easier to calculate, you still need to make the choices of what to sell and actually follow through with the sale and repurchase.
Sir if we sell within 1 year, the Gain is taxable under STCG, why are you calculating for LTCG?
Have the same query, I also want to know the exact date we must invest in MF and at what date we must exit from MF.
Sir If I make 1L in profits in LTCG in mutual fund, and I make say 15LPA (new regime) then I won't pay LCCG tax on MF but will that make my net income 16L, instead of 15L? and will that then increase my income tax?
LTCG has no connection with salaried/income tax. It is independent.
Hello, long-term realised gains from equity funds are exempt up to Rs 1 lakh. So, while these gains will increase your annual income to Rs 16 lakh, there won't be any tax incidence due to them.
Will it work if i sell and then purchase back immediately ?
Anyone please ?
Legally ofcourse 😅
How can we know that we have been charged for exit load by mutual funds?
No apps shows this, even the amc’s statement don’t shows the exit load charged on how many units.
I have contacted the AMC directly they says we don’t have any such statement🙂
@@RahulVerma-tv6gqKuvera shows it when you redeem.
What abt indexation benefits in LTCG?
Hello, there are no indexation benefits on long-term capital gains arising from equity.
Who will deduct STCG or LTCG Tax?
Hello, it's not deducted automatically. You will need to pay it at the time of filing your ITR or you can also pay advance tax.
Please correct me, but this is not at all good for long term investor , who is suppose thinking to make profit of like 80-90 lakhs, because in this case no matter how much you try , you will be taxed after profit goes above 1 lakh rupees
Govt: Inflation. Pay up more and pay more taxes.
Govt when it comes to raising limits due to inflation and crippling loss of purchase power: *pikachu face*
Dont say no matter where invested made profit- though true for majority but many have given big negative returns
We're all investing from the portion of our income that remains after taxes, and it's disheartening to see further deductions from that pool.
The government needs to consider the perspective of taxpayers like us who are directly affected by these deductions.
New govt will remove this loop hole
With ET Money genius portfolio's monthly rebalancing feature, investor will be paying huge amounts of STCG tax. None of the investment is allowed sufficient time to give proper returns. While rebalancing, et money should take into account the losses it will cause.
Hi,
Genius recommends buying/selling (in case of stocks) and switching (in case of Mutual Funds) in a way that minimum selling of your investments is happening to minimize tax implications.
However, Genius is built to prioritize maintaining asset allocation of your portfolio nearest or equal to that day's ideal asset allocation of the strategy. So, if that means incurring the cost of tax, it chooses that and recommends taking it.
As you may be aware STCG tax for Equities is 15% and LTCG tax on the same is 10% (subject to the 1L free limit in a FY) to ensure, asset allocation is maintained, at times there may be a recommendation to sell something that would result in short capital loss too.
Now ST capital losses can be carried forward and are allowed to adjust against one's short as well as one's long-term capital gains.
So, if one were to look at the taxes beyond the 1L capital gains tax-free limit then the difference between 10% and 15% tax on profits isn't really a consideration as one is paying taxes from profits + due to this set-off allowed between short-term capital losses & long-term capital gains
@ETmoney..I think tax loss harvesting is just a gimmick..see like when u setoff ur loss with profit in another fund..u might evade tax that year..but when u buy the same fund again, ur average cost price comes down so in future when u book it for profit, u have to pay the tax on a higher profit.. so the tax paid is same in both the cases. correct me if I happen to be wrong..
and even in tax gain harvesting.. it is useful for small capital.. like shown in the example, as the Capital grows it is of less help.
Strategy only works for poor investors not for the people who trade around 50Lakhs in a year.
Where is the hindi video for the same?
Hello, we understand that Hindi is your preferred language. We also have a Hindi channel, on which you can find the translated versions of the videos on this channel, along with lots of other insightful content. Please visit www.youtube.com/@etmoneyhindi.
It’s a theoretical concept! No way near to practicality!!
Most pathetic approach to lose money.
Here's a fun fact: If you try to do tax loss harvesting every year that means your money will be out of the market for few days. Since we cannot know whether those will be the golden days for the market.
Even in the last 40 years of SENSEX, if someone have just lose 25 golden days, then their average returns reduces from 13.5% to 10%
We can buy in 1-2 days itself after selling where in there will not be much difference in price of stocks
If you feel like that invest first and sell which is more than 1 year