Tax Loss Harvesting - Basic Doubts

Taxation
1

Wanted to understand Tax loss harvesting. Please note I have already read the module of Taxation/Advance Tax Links at Zerodha varsity. I have had huge losses which I never knew could be offset in this manner of harvesting. This may be a basic doubt for someone, since I have suffered quiet a bit, want to take advantage at least now, but want to confirm before I go ahead & sell such huge loss making shares. Kindly request your precious time in this regard.

Please note all transactions are in cash market and have taken delivery into the demat account. No F&O.

1] Whatever is purchased and if in loss, u can use it to reduce your short term capital gains tax. Now my Q is - My new CA says, don’t bother about the FY (Financial Year) or AY (Assessment Year). If you purchased a stock “A” say on Jan 15th 2017 and today 10th August 2017, it is in heavy paper loss. Before Jan 15th 2018, If I book the losses in real i.e sell the loss making shares, this loss can be used to offset any STCG.

Is my CA correct that within the 365 days of purchasing the loss making stock, if I book the loss in real, I can offset any gains I have made before filing the tax? I am worried about the date/current year aspect here.

2] Once the T+2 is complete after selling and the sold shares are deducted from my demat account, what amount you sold you repurchase ANY stock for the same value to keep the portfolio value intact. Do U concur?

3] Suppose I obtained 20k after selling the loss making share/shares, I need to repurchase ANY stock not necessarily from the same sector worth 20k to keep the portfolio value intact.
If I sell loss making stock in sugar sector and get 20K, I can purchase HDFC Bank for 20k so that the portfolio value is same. Is this Ok?

4] Within how many days should I repurchase new shares worth 20k? Can I repurchase the HDFC Bank shares in say 2 weeks/months time?

5] Suppose I invested in a stock “A” on March 11th 2015 purchased 100 shares and it tanked, I averaged it July 25th 2017 by buying 50 shares, It tanks further. In this case I can sell the shares that I purchased in July 2017 with in July 2018 to book loss and offset the STCG. I CANNOT use the shares purchased in March 2015 to sell and offset the STCG in 2017-2018. Is this correct?

6] I can sell one stock (Bhushan Steel) where is there is a loss of say 1LK and buy 2 or more company stocks (HDFC & Capital First) for 1Lk?

Look forward to an early guidance as in this downfall, I can sell those loss making stocks and get capital to invest in good stocks.

Thanks, God Bless.

2

1] Whatever is purchased and if in loss, u can use it to reduce your short term capital gains tax. Now my Q is - My new CA says, don’t bother about the FY (Financial Year) or AY (Assessment Year). If you purchased a stock “A” say on Jan 15th 2017 and today 10th August 2017, it is in heavy paper loss. Before Jan 15th 2018, If I book the losses in real i.e sell the loss making shares, this loss can be used to offset any STCG.

**True as you have booked the loss with in one year of holding **

Is my CA correct that within the 365 days of purchasing the loss making stock, if I book the loss in real, I can offset any gains I have made before filing the tax? I am worried about the date/current year aspect here.

**Taxes are filled on Previous Year basis , in case of Trader he can devalue the stock to the Market price on closing day of Financial year ie 31st March. So for Investor it need to be booked in the same FY **

2] Once the T+2 is complete after selling and the sold shares are deducted from my demat account, what amount you sold you repurchase ANY stock for the same value to keep the portfolio value intact. Do U concur?

**Its done FIFO(First In First Out)… **

4] Within how many days should I repurchase new shares worth 20k? Can I repurchase the HDFC Bank shares in say 2 weeks/months time?
**You can **

  1. Use FIFO 6. You can
1 Like
3

Thanks TAXIQ.IN for responding to such basic query in such short time. I truly appreciate this gesture :pray::pray:

God Bless

4

Hi,
I have another doubt with respect to the FIFO. Kindly clear this one please.

I had shares of Ujjivan Financials and made profit. Instead of taking cash, I usually free the shares equal to profit.

For ex: In Aug 2016 - I bought 10 shares of Ujjivan Financials at 230/- and sold 5 shares at 460/- in Oct 2016. I have now retained 5 free of cost (FOC) Ujjivan Financials shares.

This transaction is now complete.

After a few days/weeks.

In Nov 2016 - I again find Ujjivan to be trading at attractive valuations and take re-entry. Unfortunately the stock keeps tanking due to various news and whenever possible I keep on averaging. The loss now here is really deep. Thank fully, it is in the same FY.
I now plan to sell it in Aug 2017 to harvest loss

Since you mentioned FIFO to be used above. In this case,

1] Can I sell the shares bought Nov 2016 onwards to till date to harvest loss?

2] I hope there will be no issue in doing so even though I have FOC shares with me from the transactions done in 2016.

3] I will not be selling the FOC shares when I book loss. I will use only shares that were purchased in Nov 2016 onwards to harvest my loss.

I have at least 10 stocks where in I have FOC shares and the newly entered transactions are in loss. If the above is valid, I want to hold FOC shares and sell only NEW transaction shares where in I am incurring negative returns to harvest tax loss.

Kindly clear this one question please.

5

When we say FIFO , You cost per Shares is 230 and You have sold the same at 460 . The Margin of 230 is STCG or traing profit based on your classification. And know Balance 5 Shares will also cost you Rs 230.

And if you take further shares then your holding will be 5 Shares of Rs 230 + New holding at the price you have taken and if the price have dropped in big manner you can book loss to offset earlier Gains.

7

I m really sorry, could you please answer question wise. I have already paid the tax for the first transaction. Please answer in the context of FOC shares kept & tax paid and done with. New holdings in the same stock in loss. Can the new holdings be used for harvesting tax loss?

Kindly guide

8

I m really sorry, could you please answer question wise. I have already paid the tax for the first transaction. Please answer in the context of FOC shares kept & tax paid and done with. New holdings in the same stock in loss. Can the new holdings be used for harvesting tax loss?

Kindly guide

9

New holding can be sold and you can book loss which will offset your gains. If you have already paid taxes , you can claim refund of the same

10

@TAXIQ.IN @siva-reddy @Quicko
I have 1lac LTCG tax gain in TCS, now to save tax I will need to sell TCS and buy back it, can this be done the same day or after selling I have to wait and buy it back the next day?
thanks

11

To save tax you don’t need to buy it back. Just selling at a loss is enough.

I do understand that you want to have the same number of TCS shares back in your portfolio. So it is perfectly fine to buy them back for this purpose. I just wanted to make it clear that the tax man couldn’t care less if you bought them back or not (but see below!).

For the sale to be counted towards capital gain/loss computation, the shares must leave your demat account. If you buy some shares back the same day, then those many shares will not leave your demat account (unless you are working with two different demat accounts, one for selling and another for buying).

To be on the safe side: if you are buying shares back, then wait for a couple of days. The shares that you sold will leave your demat account by T+2, since they have to be delivered to the other party by that date.

12

Hi @TAXIQ.IN @Quicko
Can Tax harvesting be used accrosss the equity and equity mutual funds?
I mean if I have booked long term profit by selling equity mutual fund, can I offset this profit against loss of (selling) shares which have holding more than a year?

13

Try tagging @Quicko
@TAXIQ.IN is not active from Sep 2020.

14

Hello @hiren_parekh,

In order to save tax by tax loss harvesting you will have to wait for a day and buy back your stocks again the next trading day.

However, you must make sure that the transaction cost of entering into buy and sell transaction is less than the amount of taxes saved from Tax Loss Harvesting.

Hope this helps!

15

Lets Say I have loss of 5K Short Term.

100 Quantity and loss of 5K.

I will buy again 100 Quantity and next day sell 100 Quantity. ? will that work ? or We need to sell first and then buy?

@ShubhS9 @siva-reddy

16

Yes it will. When you sell the shares are delivered on FIFO basis. So the ones which you bought earlier will be considered as sold.
But please be careful with price fluctuations.

17

PNL
PNL974Ă—591 50.9 KB

I am bit confused… Can you please clear my doubt

18

If I sell my loss making long term holding share from my demat account and buy the same company’s shares in another broker (same person’s PAN) the same day , can it be considered as tax loss harvesting and therefore set off the losses against long term gains ? @nithin

I know the straightforward way to do this would be be sell the shares and buy them the next day. But this share is volatile and I don’t want to miss out on possible large price movements.

19

Yes. You are delivering the share to the buyer.

20

Hi
Regarding tax loss harvesting, since we pay advance tax by 15th March, what ever harvesting we do post that date can be claimed as refund while filing our ITR. Please correct me if I am wrong.
Thanks

21

If the two transactions are from different demat accounts, then yes, you can use this procedure for tax loss harvesting.

If the two transactions are based on the same demat account, then no.