Turn Your Market Losses Into Tax Savings Before FY Ends
If your investment portfolio has taken a hit this year, you’re not alone. Volatile markets can be tough, but there’s a smart strategy to ease some of the pain—tax-loss harvesting. This technique lets you turn investment losses into potential tax relief. But you need to act before March 28, 2025, to make the most of it.
Let’s break down what tax-loss harvesting means and how it can help you save on taxes this financial year.
What is Tax-Loss Harvesting?
Tax-loss harvesting involves selling investments that are currently at a loss to offset gains from other investments. This can help lower your taxable capital gains and ultimately reduce your tax bill.
How Does It Work in India?
In India, capital gains on stocks and equity mutual funds are taxed based on how long you hold them:
- Short-Term Capital Gains (STCG): Gains on assets held for 12 months or less, taxed at 15%.
- Long-Term Capital Gains (LTCG): Gains on assets held for more than 12 months, taxed at 10%, with an exemption on the first ₹1.25 lakh.
You are taxed only on net capital gains—so if you realize losses by selling underperforming investments, you can use those to reduce the gains on which you’ll pay tax.
Example:
Say you have ₹5 lakh in long-term gains and ₹2 lakh in short-term gains, but also ₹3 lakh in unrealised long-term losses. If you book those losses by March 28, you only pay tax on ₹4 lakh instead of ₹7 lakh.
Can You Offset Trading Losses Against Mutual Fund Gains?
Yes—but with some caveats. Different types of income are taxed differently:
- Intraday trading = speculative income
- F&O trades = non-speculative business income
- Stocks & mutual funds = capital gains
Here’s how the offset rules work:
- Non-speculative business losses (like F&O) can be set off against capital gains and most other income (except salary).
- Speculative losses (like intraday) can only be set off against speculative income.
So, if you’ve made a loss in F&O trading, you can use it to reduce the tax on profits from mutual funds or stocks. But losses from intraday trading can only offset intraday gains.
How Long Can You Carry Forward These Losses?
If you can’t set off all your losses in the current year, you can carry them forward:
- Short-term capital losses: Set off against short- or long-term gains; carry forward up to 8 years.
- Long-term capital losses: Only set off against long-term gains; carry forward up to 8 years.
- Speculative losses: Only set off against speculative gains; carry forward up to 4 years.
Is Tax-Loss Harvesting Allowed Under the New Tax Regime?
Yes. Whether you opt for the old or new tax regime, tax-loss harvesting is permitted for FY2024-25.
Two Crucial Deadlines to Keep in Mind
- File your ITR on time: You must file your income tax return by July 31, 2025, to benefit from tax-loss harvesting.
- Sell before the deadline: Since the markets will be closed on March 29–31 (weekend + Id-Ul-Fitr), make sure you sell any loss-making investments by March 28, 2025.
Conclusion
Tax-loss harvesting is a powerful tool, but it needs careful execution. If you’re unsure or need help navigating the rules, consult a qualified financial advisor. Getting expert help can prevent errors and ensure you comply with tax regulations while maximising your savings.
“Tax laws are subject to change. Please consult V4U Finserv for personalized guidance.”
