Tax-loss harvesting gains spotlight as investors look to cut year-end tax burden
New Delhi – As the financial year closes, investors rush to trim their tax outgo. Most turn to common options like deductions and ELSS. However, many now explore a lesser-used strategy—tax-loss harvesting. This method helps investors use market losses to reduce tax on gains. As a result, it offers both immediate relief and long-term planning benefits.
Tax-loss harvesting follows a simple idea. Investors sell loss-making assets. Then they use those losses to offset profits from other investments. For instance, an investor may earn gains from gold or silver. At the same time, they may hold losses in equities. In such cases, they can adjust losses against gains. Consequently, their taxable income falls, and their tax bill drops.
Moreover, if investors do not use losses in the same year, they can carry them forward. Current rules allow this carry-forward for up to eight years. Therefore, investors can plan ahead and use losses when they expect higher gains.
This year has created a unique setup. Equity markets have seen volatility. Many investors now sit on paper losses. Meanwhile, gold and silver have delivered strong returns. This contrast has increased tax liability on commodity gains.
Therefore, tax-loss harvesting becomes more relevant. Investors can use equity losses to offset gains from commodities. Since such gains can attract taxes as high as 30%, this adjustment can lead to meaningful savings.
According to Archit Gupta, the strategy goes beyond short-term tax reduction. He explains that investors should think about timing. In some cases, paying a small tax now can lead to larger savings later.
Consider an investor with ₹6 lakh gains from gold and silver. At the same time, the investor holds ₹6.9 lakh losses in equities. First, the investor adjusts ₹6 lakh losses against gains. This step eliminates tax on those gains.
Now, ₹80,000 loss remains. Here, the investor faces a choice. They can use this loss immediately or carry it forward.
If they use it now, they save tax at a lower rate, around 12.5%. This leads to savings of roughly ₹10,000. However, if they carry forward the loss and use it next year against high-tax gains, the benefit increases. At a 30% rate, the same loss can save around ₹24,000.
Thus, the investor pays a small tax today but gains more later. Over time, this approach reduces total tax outgo significantly.
On the ground, many retail investors focus only on immediate savings. They often ignore future tax planning. As a result, they miss opportunities to optimise returns.
However, experts advise caution. Investors should not sell strong assets just to book losses. Long-term goals must remain the priority. Additionally, the strategy works only if future gains are likely. Without gains, carried-forward losses lose value.
As the deadline ends, investors need a careful review. They should check their portfolio. They should identify losses and gains. Then they should decide how to use them.
Tax-loss harvesting offers more than quick savings. It provides a structured way to manage taxes over time. With the right approach, investors can turn temporary losses into long-term financial gains.
