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Tax loss harvesting

Discussion in 'Technical Analysis' started by laveshdixit, Mar 24, 2025.

  1. laveshdixit

    laveshdixit Responder

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    laveshdixit, Mar 24, 2025
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  2. laveshdixit

    laveshdixit Responder

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    A lot of portfolios of people might be in losses in this year. It may be a good idea to do tax loss harvesting to offset the taxes that you have to pay for booking profits in this year.
     
    laveshdixit, Mar 24, 2025
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  3. shabbir

    shabbir Administrator Staff Member

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    Yes it is always a good option to reduce the tax one needs to pay
     
    shabbir, Mar 25, 2025
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  4. laveshdixit

    laveshdixit Responder

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    There was a very interesting information that I got to know yesterday about tax loss harvesting.

    It is essentially a tax deferment exercise.
    It is not that you save tax entirely but you defer tax to the next year. I did not know this.

    Refer thisvideo, just the first part. Can ignore the second part of the video.


     
    laveshdixit, Mar 25, 2025
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  5. shabbir

    shabbir Administrator Staff Member

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    True but generally if I want to be holding a company for long-term, then I prefer doing tax loss harvesting for the short term and save 20% and defer the payment now and then pay 12.5%
     
    shabbir, Mar 25, 2025
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  6. laveshdixit

    laveshdixit Responder

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    Wouldn't it be the case that your acquisition cost reduce by the loss harvested, and then when you sell, you are actually paying a higher tax as the future profit will be proportionally high. (selling prive - lower proportion cost of acquisition)
     
    laveshdixit, Mar 25, 2025
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  7. laveshdixit

    laveshdixit Responder

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    Also there are transaction charges on both sides, and one may not know the change in stock price that happens between the time you sell and buy again.
     
    laveshdixit, Mar 25, 2025
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  8. shabbir

    shabbir Administrator Staff Member

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    Yes true but then lets do some calculation and it will help you.

    Your purchase price is ₹100.
    You booked loss at ₹70 and then repurchased the next day at ₹70.

    So on the loss of ₹30 and saved ₹6 at 20%

    Now your purchase price is ₹70 and the price goes back to ₹100 but takes one year's time. Now on the profit of ₹30 you pay ₹3.75 as LTCG tax.

    However, if you had to pay back the tax at 20% at ₹100, you don't save anything but defer the tax payment. But because the stock can take longer time to reach to that price or you can wait a little more and then sell at ₹120 as well. When you have an arbitrage of saving STCG and then waiting to gain and pay LTCG is when you have benefits. Not otherwise.

    Again, one can argue on the STT but we also have 1.25L as free slab under LTCG as well and so there is some saving for sure. However, saving on purely STCG and then paying STCG again doesn't make sense.

    Similarly, saving LTCG and then paying LTCG doesn't make much sense beyond the 1.25L tax free slab.
     
    shabbir, Mar 26, 2025
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  9. laveshdixit

    laveshdixit Responder

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    Thanks for the explanation.
    Good tax Savings would be there but only if the loss is significant.
    Also your conviction on the stock should be high.

    And if the stock is good anyways, then it can compensate for the loss and recover nicely over long term in which case anyways you profit and pay lesser ltcg.

    So my take is that yes tax loss harvesting is helpful but only to a small extent.
    I woyld sell the stock if my view in it has changed, and not to just save some taxes here and there.
     
    laveshdixit, Mar 26, 2025
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  10. shabbir

    shabbir Administrator Staff Member

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    Exactly. Tax loss harvesting is more like click bait on social media. Ideally one should book loss and then buy back share that they plan to hold for the long-term and not otherwise.
     
    shabbir, Mar 26, 2025
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