Tax Loss Harvesting 2025: The Secret to Reducing Your Capital Gains Tax
Tax Loss Harvesting in India, A Guide for 2025
If you are annoyed by the capital gains tax you pay, keep reading. Is it possible to find a smart way to lower your taxes, while obeying all the laws? Tax Loss Harvesting is a good way to save thousands in taxes, but it is sometimes overlooked by many.
Now that the 2025 Union Budget has brought new updates, it’s the ideal opportunity to find out how to use this strategy.
What Does It Mean to Tax Loss Harvest?
Tax Loss Harvesting is when you sell off investments that have decreased in value to help offset earnings from winning investments. Therefore, you pay less tax on your capital gains.
It’s basically finding ways to learn from your setbacks.
How Does Tax Loss Harvesting Work? (Simple Example)
To understand a 2025 example, let’s try to break it down:
- Suppose your investment is in the stocks market for ₹10 lakh.
- You earned a profit of about ₹2 lakh on certain stocks (Capital Gains).
- However, you also have some stocks that are showing a ₹1 lakh loss.
Rather than keeping the losing stocks, you sell them, thereby realizing a loss of ₹1 lakh which is now used to offset the earlier gains of ₹2 lakh.
- Before Tax Loss Harvesting: There is taxation on ₹2 lakh.
- After Tax Loss Harvesting: Now only taxable amount is 1, 0000.
- Outcome: Tax liability is lower now and losses are carried forward up to 8 years.
Updates of Budget 2025 That Pertain to You
The most recent CY25 Budget has brought some changes on the investors front:
- LTCG Exemption Remains the Same at ₹1 Lakh: Any gains above this will incur a 10% tax.
- Indexation Benefits Are Reintroduced: For taxation purposes, this refers to improved post-tax returns for debt mutual funds.
- STCG Taximetery Still at 15%: However the investment vehicles for real estate and debt securities have undergone shifts in their taxation brackets.
These improvements increase the effectiveness of tax loss Harvesting, particularly for debt and mutual fund investors.
In India, the Advantages of Tax Loss Harvesting
Understand why sophisticated investors have adopted harvesting:
- Pay Reduced Taxes: Diminish the total taxable capital gains.
- Improve Investment Opportunities: Remove unworthy underperformers and invest in better opportunities.
- Intelligently Use Losses: Unutilized losses can be carried forward for 8 years!
- Boost Long-Term Portfolio Returns: Reinforcement of stocks with stronger performance enables better portfolio growth.
Risks You Should Know
Alongside the rewards that can be gained from investing, there are some challenges an investor can come up against too:
- Market Risk: What will happen if you sell the stock and it gains value after you disinvest?
- STCG Alert: A sale within one year makes the investment subject to a 15% tax.
- Additional Costs: Apart from the above, do not forget about brokerage, STT, and other taxes.
- Proper Documentation Needed: To claim the tax benefits, keep proper documentation.
FAQs
Is it legal?
Yes, 100% legal. It’s a government-approved tax saving strategies.
How much tax can I save?
If the LTCG is over ₹1 lakh, then you can save up to 10% of your capital gains.
Can I use it for mutual funds?
Absolutely. This approach can be employed in mutual funds as well as stocks.
Does Zerodha support this?
Yes. Zerodha does provide this. Under Console > Reports, there is a Tax Loss Harvesting tool.
Final Thoughts
Tax Loss Harvesting is not simply an oversight; it’s a careful, permissible tactic to lower your tax payments and raise your returns. Following the changes to the CY25 budget, this approach has become even more useful for every investor.
Use it wisely, and you may be able to save a few lakhs in taxes and simultaneously enhancing your investment portfolio’s outcomes.
