Calculate potential tax savings through strategic tax loss harvesting. Offset capital gains with losses, optimize your tax liability, and save thousands on stock investment taxes in India.
Tax loss harvesting is a powerful tax optimization strategy where you strategically sell loss-making investments to offset capital gains from profitable investments. This reduces your overall tax liability on stock market profits. It's a legal and legitimate tax-saving technique used by smart investors worldwide.
Example: You made ₹5 lakh profit from Stock A (must pay tax on this). You also have Stock B sitting at ₹2 lakh loss. By selling Stock B before March 31, you can reduce your taxable gains to ₹3 lakh (₹5L - ₹2L), saving significant tax. You can even buy back Stock B immediately if you still believe in it!
| Type | Holding Period | Tax Rate | Notes |
|---|---|---|---|
| STCG (Equity) | Less than 1 year | 15% + 4% cess = 15.6% | On listed equity shares & equity MFs |
| LTCG (Equity) | 1 year or more | 10% on gains > ₹1 lakh (no indexation) | First ₹1 lakh gains are tax-free annually |
| STCG (Other) | Varies by asset | As per your income tax slab | Non-equity assets, bonds, debt funds |
| LTCG (Other) | Varies by asset | 20% with indexation benefit | Real estate, debt funds, gold |
Here's the step-by-step process:
1. Loss Offsetting Rules:
2. Carry Forward Rules:
3. Set-off Limitations:
1. Partial Portfolio Harvesting:
If you hold 100 shares of a stock at ₹500 avg price, currently at ₹400, you don't need to sell all 100. Sell 50 shares to book partial loss, keep 50 for recovery. This gives you tax benefit while maintaining exposure.
2. Inter-Family Transfer:
If you're in 30% tax bracket but your spouse is in 0-5% bracket, consider gifting shares to spouse (no tax on gifts between family). Spouse can then sell and pay lower tax. Legal and legitimate if done properly.
3. Stagger Loss Booking:
If you have huge losses, don't book everything in one year. Spread it across 2-3 years as you generate gains. This ensures you utilize losses optimally and don't waste them.
4. Combine with Portfolio Rebalancing:
Use tax harvesting as opportunity to rebalance portfolio. Exit overweight positions that are in loss, rotate into better opportunities. Get tax benefit + improved portfolio.
Scenario: Rahul sold Infosys shares and made ₹8 lakh short-term capital gains. He's in 30% tax bracket. Tax liability = ₹8L × 15.6% = ₹1,24,800.
His Portfolio: He also holds Paytm shares bought at ₹1200, now at ₹600. Total investment ₹6 lakh, current value ₹3 lakh (₹3 lakh unrealized loss).
Tax Harvesting Action: Rahul sells entire Paytm holding, booking ₹3 lakh loss before March 31.
Tax Benefit: Taxable gains reduced from ₹8L to ₹5L (₹8L - ₹3L). New tax = ₹5L × 15.6% = ₹78,000. Tax saved = ₹1,24,800 - ₹78,000 = ₹46,800
Next Step: Rahul can buy back Paytm next day if he believes in recovery, or invest ₹3 lakh in better stocks. He saved ₹46,800 in taxes legally!
How to report in ITR:
These detailed FAQs are covered in the section below. Our calculator handles all complex calculations automatically!
Tax loss harvesting is selling loss-making investments before March 31 to offset capital gains from profitable investments, reducing your tax liability. Example: ₹5L profit from Stock A (15.6% tax = ₹78,000) + ₹2L loss from Stock B. Sell Stock B before year-end → Net taxable gains = ₹3L (15.6% tax = ₹46,800). You save ₹31,200 in taxes! Best part: you can buy back Stock B the very next day in India (no wash sale rule like USA).
YES! India does NOT have wash sale rules like USA (which requires 30-day waiting period). You can sell a stock to book loss on one day and buy it back the very next day - completely legal and valid for tax purposes. The loss is recognized even if you immediately repurchase. This is a major advantage for Indian investors. Strategy: Book loss on March 30, buy back on March 31 or April 1 if you still believe in the stock's long-term potential.
March 31 is the final deadline. Losses must be REALIZED (stocks actually sold) before financial year ends. For FY 2025-26, deadline is March 31, 2026. Losses booked after this date will count for next financial year. Best practice: Review portfolio in Feb, identify loss candidates, execute sales in early March. Don't wait till last week as exchanges might be closed for holidays. Also, file ITR before July 31 deadline to carry forward unused losses for 8 years.
YES! Short-term capital loss (STCL) can offset BOTH short-term and long-term capital gains. However, long-term capital loss (LTCL) can ONLY offset long-term capital gains (LTCG), NOT short-term gains (STCG). Priority: STCL first offsets STCG, remaining STCL offsets LTCG. LTCL offsets only LTCG. Example: ₹5L STCG + ₹3L STCL = ₹2L taxable STCG. But ₹5L STCG + ₹3L LTCL = ₹5L taxable STCG (LTCL cannot offset STCG, but can be carried forward).
Capital losses can be carried forward for 8 assessment years from the year of loss. Critical condition: You MUST file ITR before the due date (usually July 31) to claim carry forward. Late filing = loss of carry forward benefit. Example: Loss in FY 2025-26, you can use it until AY 2034-35. Can adjust these losses against future capital gains in any of these 8 years. Losses are adjusted year-wise (oldest first). Track your carried forward losses carefully in each year's ITR.
For listed equity shares: STCG (holding < 1 year) = 15% + 4% cess = 15.6% flat rate regardless of income. LTCG (holding ≥ 1 year) = 10% on gains exceeding ₹1 lakh per year (first ₹1L tax-free). No indexation benefit on equity. For debt/other assets: STCG taxed as per your income slab (0-30%). LTCG = 20% with indexation benefit. Key insight: If your income tax slab is 30%, you pay 30% on STCG but only 15.6% on equity STCG - huge difference!
YES for brokerage, NO for STT on equity. Purchase cost = stock price + brokerage paid. Sale price = selling price - brokerage paid. This increases your cost basis and reduces taxable gains (or increases losses). However, STT (Securities Transaction Tax) paid on equity shares is NOT added to cost or reduced from sale price - it's a separate non-deductible expense. For derivatives/commodities, different rules apply. Always check your broker's contract note for accurate brokerage and STT amounts before calculating capital gains.
NO! Intraday trading and F&O losses are classified as "speculative losses" under Section 43(5). They can ONLY offset speculative gains (other intraday/F&O gains), NOT delivery-based capital gains. Unused speculative losses can be carried forward for 4 years (not 8). This is why professional traders segregate: 1) Delivery portfolio (capital gains), 2) Intraday/F&O (speculative). Track both separately in ITR. If you want to offset equity gains, sell loss-making delivery stocks, not F&O/intraday.
Absolutely LEGAL! Tax loss harvesting is a legitimate tax planning strategy recognized worldwide. As long as transactions are genuine (actual sales, not fake), there's no issue. IT department expects rational behavior - booking losses is normal investment management. However: 1) Maintain all records (contract notes, bank statements), 2) Report correctly in ITR with accurate dates and amounts, 3) Don't create circular transactions (sell to relative, buy back same day at same price - sham transactions). Genuine loss booking even with immediate buyback is perfectly fine.
Excess losses can be carried forward for 8 years to offset future capital gains. Example: FY 2025-26 → ₹2L gains, ₹5L losses = ₹3L unused loss carried forward. FY 2026-27 → ₹6L gains, use ₹3L old loss = ₹3L net taxable gain. IMPORTANT: File ITR before due date to carry forward. Even if you have no income, file ITR to preserve loss carry-forward benefit. You can claim these losses against future gains in any of next 8 years. Track carried forward amounts carefully each year.
Strategic selection is key: 1) Fundamentally weak stocks: Companies with deteriorating business, sector headwinds (exit and don't look back), 2) Speculation gone wrong: Small caps/penny stocks you bought on tips (book loss and move on), 3) Overweight positions in loss: If you're overweight in a sector that's down, book loss and rebalance, 4) Short-term losers: If stock fell 20%+ in few months, book loss and reassess. DON'T sell: Quality companies in temporary correction, stocks near reversal, holdings you strongly believe in. You can sell and buy back next day if needed!
Step-by-step: 1) Use ITR-2 (if salaried) or ITR-3 (if business), 2) Go to "Capital Gains" schedule, 3) For STCG: Fill Short Term Capital Gains section - mention stock name (or number of transactions), sale value, cost, expenses, net gain/loss, 4) For LTCG: Fill Long Term section similarly, 5) System auto-calculates total gains minus losses, 6) If net loss, it goes to "Losses to be carried forward" automatically, 7) Attach capital gains statement from broker (some require this), 8) E-verify within 120 days. Keep contract notes for 7 years in case of scrutiny.
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