Maximise Your Investment Returns With Smart Tax Harvesting
In financial planning, taxes are a key element that most investors ignore. Most investors focus on income tax deductions but often fail to account for the capital gains tax imposed on their stock market investments and mutual fund profits.
Capital gains cannot be deducted from salary income. Poorly managed investors might be unnecessarily subjected to taxes. Tax harvesting is an intelligent and legal strategy for lowering taxable gains, maximizing tax liability, and boosting net returns.
Tax harvesting involves selling losing investments to offset the gains of other investments, reducing the amount of tax you need to pay. It is a popular strategy used worldwide, and Indian investors can also make use of it. By reinvesting in the same assets, they can continue to accumulate wealth while saving taxes. Regardless of whether you are investing in stocks, bonds, mutual funds, or ETFs, tax-wise management of your capital gains can make you richer in the long term.
Long-Term Capital Gain (LTCG): If you sell your investments after holding them for more than 12 months, a tax rate of 12.5% applies to gains over Rs 1.25 lakh.
Short-term Capital Gains (STCG): This applies when investments are sold within 12 months. In such cases, a flat 20% tax is charged on the total gain.
Tax harvesting is a good method of lowering your tax rate by offsetting your capital gains with losses on investments. It also allows you to reinvest your funds to earn and carry over unused losses for up to 8 years. But it requires close tracking, has some transaction fees, and may not be effective if the market returns after you sell your losing stock.
Even with some risks, tax harvesting can help investors reduce their taxes and improve their returns. It is a useful strategy for better financial planning. By carefully managing their gains and losses, investors can keep more of their earnings and get the most out of their investments.
