Tax-loss harvesting is a smart way to reduce your tax bill by selling investments that are making a loss. These losses can be used to offset profits you made on other investments. It helps lower your overall taxable income, and you can reinvest the money into similar assets to stay invested in the market.

What is Tax-Loss Harvesting in Simple Terms?

Tax-loss harvesting means selling investments that are making a loss to reduce the amount of tax you need to pay on profits from other investments. It’s a legal way to balance your gains and losses, so you pay less tax overall.

Why is Tax-Loss Harvesting Important for Investors?

It helps investors reduce their tax burden by using losses to cancel out gains. This is especially helpful at the end of the financial year when people review their profits. Even if your investments are not doing well, you can still get a tax benefit through this method.

How Does Tax-Loss Harvesting Work in India?

In India, you pay tax on capital gains made from selling shares or mutual funds. If you make a loss on some investments, you can use that loss to reduce your tax on other gains. For example, short-term losses can be set off against short-term or long-term gains, and long-term losses can be set off against long-term gains.

Can You Reinvest After Tax-Loss Harvesting?

Yes, after selling your loss-making investment, you can reinvest the money into another similar asset. Just make sure it's not the exact same stock or fund. This way, you stay invested in the market and also get the tax benefit. It’s a smart way to manage your portfolio.

What are the Rules for Carrying Forward Capital Losses?

In India, if you cannot use all your capital losses in the same year, you can carry them forward for up to 8 years. But you must file your Income Tax Return on time to use this benefit. Only capital losses reported in returns can be used in future years to reduce taxes.

Who Should Use Tax-Loss Harvesting?

Anyone with capital gains and some losing investments should consider tax-loss harvesting. It’s most useful for investors who actively manage their portfolio and want to save on taxes legally. Long-term investors, high-income earners, and mutual fund investors can benefit a lot from this strategy.