Tax Loss Harvesting

Tax Loss Harvesting is a good tool to save on tax liability.

In this, you sell some stocks in negative to book a loss to set off the profit which has already been booked by you before [in the current financial year]. This makes your tax liability zero or minimal. You can buy back the sold stocks after 2 days.

This ensures you pay as low a tax as possible on your equity operations; and goes out further in order to enhance the RoI of Premium Plan for you.

<aside> ⚠️ A few drawbacks of Tax Loss Harvesting [TLH]

[ ] A few might argue that for long term investors TLH doesn’t save taxes; it only defers those taxes from current financial year to upcoming financial years. This is true to a certain extent as the stocks which you re-buy will gain in value and even if they only reach your buying price at some point in time, they will make you liable for paying the same tax which you avoided previously through TLH.
[ ] If you sell some stocks today to do TLH and you plan to re-buy those stocks after 2 days [2 days is recommended as we have a T+2 delivery system]. Suppose the market moves up within the next 2 days and you are now re-buying your stocks at a bit elevated prices. This again leaves you with a notional loss.
[ ] Many investors follow a buy-on-dips strategy. This means that if one of our stocks falls by 20% [suppose] we will buy more of it. This leads to a better return as it forces us to buy when the stock is down, bumping up our returns.

Now let’s say we did TLH with stock A which was down by 20%. Due to TLH, the loss which was visible previously, now disappears after we re-buy A. This means that without TLH, we could have executed buy-on-dips on A [as it was visibly down by 20%]. But after TLH, we won’t do the same as our criteria of 20% fall doesn’t suffice. So we would essentially skip doing buy-on-dips on A, which would deprive us of that return bump-up we could have captured otherwise, again leaving us with a notional loss.

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