Tax Harvesting to Rescue Investors: How It Can Help You Save Big on Taxes?

Tax harvesting is a very smart strategy for investors to reduce their tax liability and save on taxes. It utilises investors’ investment losses to offset the taxes they have to pay on their gains. While it is a common practice in the US, Indian investors can also use this strategy to lower their tax bills.

What does Tax Harvesting mean?

Tax harvesting means selling investments at a loss to lower the taxes you need to pay on your profits in the same financial year. If a portfolio has stocks or mutual funds that show a loss near the end of the financial year, selling them before March 31, 2025, can generate capital losses to reduce the tax you need to pay.

What is the Process of Tax Harvesting?

• Sell stocks or funds that are not performing well to create a capital loss.
• Use this loss to reduce the taxes you owe on profits from other investments, like stocks or real estate.
• If you do not have any profits now, you can save the losses and use them to lower your taxes on future gains for up to 8 years.
• To stay invested in the market, you can buy a similar asset right away or repurchase the same one after two days.

Things to Keep in Mind

If you lose money on investments, it will not reduce your salary tax. But you can use those losses to lower taxes on profits from stocks, property, or similar investments.

You can not use past losses to reduce taxes on profits from derivatives. When adjusting your investments, be cautious so you do not miss out if the market bounces back. Tax harvesting is easy for mutual funds and ETFs. You can sell one fund and buy another similar one. For stocks, you have two options: either buy shares of a competitor in the same industry or wait two days before buying the same stock again.