U.S. gasoline prices have now climbed 23.5% since the war began, climbing to a national average of $3.68 a gallon on Saturday. The global price of oil has surged even more sharply, rising 40% over the same period to $103.14 a barrel on Friday. Historically, gas prices tend to lag behind shifts in crude oil costs, suggesting further increases could be on the horizon.

Sensex and Nifty have seen a massive selloff amid the raging Iran-Israel war, wiping out nearly Rs 34 lakh crore from the total market capitalisation of BSE in March so far. As bears dominate the markets, investors may consider tax harvesting as a way to save on taxes.

Tax harvesting involves two methods tax loss harvesting and tax gains harvesting. Investors are liable to pay capital gains tax on equities only when the shares are sold. While taxes are payable on gains, investors also have an opportunity to save taxes if they incur losses.

What is tax loss harvesting?

Tax loss harvesting involves selling equities that are at a loss and then carrying forward the loss to offset gains in future years. The loss can be carried forward for up to eight assessment years from the assessment year in which it was incurred.

Example: An investor named John sold shares of X Company on Friday (bought in February last year) and made a profit of Rs 5 lakh. Since the holding period is more than 12 months, this is treated as a long-term capital gain (LTCG).

Breaking down his tax liability: Rs 1.25 lakh of the profit is exempt, while the remaining Rs 3.75 lakh is taxed at a flat rate of 12.5%. John wants to reduce his tax liability using tax loss harvesting.

John also owns shares of Y Company, which have fallen significantly below his purchase price. By selling Y shares and incurring losses of Rs 3.75 lakh, his overall tax liability for the year is reduced to zero, as the losses offset the gains from X shares.
“This method is called tax loss harvesting. Normal human tendency is to sell shares that are profitable and hold shares that are in loss. Tax loss harvesting is about selling shares incurring substantial loss so that it can offset profits already made. Unless you sell the shares, you cannot claim the loss under Income Tax law,” said tax and investment expert Balwant Jain.For short-term capital gains (STCG), i.e., profit from selling shares held for less than 12 months, the tax is 20% flat and does not enjoy the Rs 1.25-lakh exemption like LTCG. You can book losses up to the gains made during the year to reduce STCG liability, Jain explains.

What if the stock you want to sell for tax loss harvesting is expected to rally in the future? In John’s example, if he believes Y shares will rise, he can still book a loss and buy the same stock in a different trading account on the same day. If he has only one demat account, he can repurchase the stock the next day. However, intraday sale and purchase on the same day using the same account will not qualify for tax loss harvesting.

What is tax gains harvesting

Consider an investor named Harry. He holds 100 shares of A Company for more than 12 months. Today, the total profit from selling all shares would be Rs 3 lakh.

If Harry sells only 41 shares and continues to hold the rest, his LTCG reduces to Rs 1.23 lakh, which falls under the exemption limit, resulting in zero tax liability. This strategy is called tax gains harvesting.

In the July 2024 budget, Finance Minister Nirmala Sitharaman revised STCG and LTCG rates:

• STCG: increased from 15% to 20% for shares held less than 12 months.
• LTCG: increased to 12.5% on gains exceeding Rs 1.25 lakh for shares held 12 months or more.

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of The Economic Times.)

This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com.

All hail the new king of packages. 

For the first time in history,

FedEx

FDX

-0.41%

decrease; red down pointing triangle eclipsed United Parcel Service UPS -0.69%decrease; red down pointing triangle this week in market capitalization, a sign of how much Wall Street is rewarding the delivery giant that can shrink the fastest to boost profits.

This article was written by

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Lawrence Fuller is the Principal of Fuller Asset Management (FAM), a state registered investment adviser. He is also the manager of the Focused Growth portfolio on the copy-trading platform Dubapp.com. Information presented is for educational purposes only intended for a broad audience. The information does not intend to make an offer or solicitation for the sale of purchase of any specific securities, investments, or investment strategies. Investments involve risk and are not guaranteed. FAM has reasonable belief that this marketing does not include any false or material misleading statements or omissions of facts regarding services, investment, or client experience. FAM has reasonable belief that the content as a whole will not cause an untrue or misleading implication regarding the adviser’s services, investments, or client experiences. Past performance of specific investment advice should not be relied upon without knowledge of certain circumstances or market events, nature and timing of investments and relevant constraints of the investment. FAM has presented information in a fair and balanced manner. FAM is not giving tax, legal, or accounting advice.
Mr. Fuller may discuss and display charts, graphs, formulas, and stock picks which are not intended to be used by themselves to determine which securities to buy or sell, or when to buy or sell them. Such charts and graphs offer limited information and should not be used on their own to make investment decisions. Consultation with a licensed financial professional is strongly suggested. The opinions expressed herein are those of the firm and are subject to change without notice. The opinions referenced are as of the date of publication and are subject to change due to changes in market or economic conditions and may not necessarily come to pass.

Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.