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Market downturns can be unsettling, especially when you see your portfolio in the red. But what if you could turn those losses into an opportunity? This is exactly what tax-loss harvesting allows you to do. Many savvy investors use this strategy to offset taxable gains and minimize their overall tax liability. In this article, we’ll explore how tax-loss harvesting works and how you can use it effectively.
Tax-loss harvesting is a strategy where investors sell underperforming stocks or mutual funds at a loss to offset capital gains tax on profitable investments. The loss booked from the sale can be deducted from taxable gains, reducing the amount of tax owed.
This method is widely used by experienced investors to save thousands or even crores in taxes while optimizing their portfolios. It’s important to understand the rules and best practices to ensure compliance with tax regulations.
Before diving into tax-loss harvesting, let’s look at some important concepts:
Using these tax rules, investors can apply tax loss harvesting to reduce taxable gains and optimize their tax burden.
Check out the video link for a more in-depth understanding
Let’s consider an investor, Rajesh, who has the following portfolio:
By strategically selling underperforming assets, Rajesh reduces his tax bill while maintaining an optimized portfolio.
Check out the video link for a more in-depth understanding
If you are a long-term investor, tax-loss harvesting can help you reduce tax liability and rebalance your portfolio. The strategy is widely used worldwide, including in India, and is legally allowed under the Income Tax Act.
However, make sure you do the following:
Market downturns don’t always have to be bad news. By using tax-loss harvesting, you can make smart financial moves to optimize your portfolio and save money on taxes. Whether you invest in stocks, mutual funds, or ETFs, this strategy can help you make the most out of volatile markets.
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