Tax Harvesting can save up to ₹10,000 in LTCG taxes every year!

Tax Harvesting – Reduce your LTCG taxes for higher returns

Last year a 10% Long Term Capital Gains (LTCG) tax was introduced where none existed before. The LTCG tax, however, came with a tax break.

The first Rs 1 Lakhs of LTCG is exempt from 10% taxes. 

 

Tax Harvesting is a technique that utilises the ₹1 Lakh annual LTCG exemption by selling and buying back part of your investment such that you “realise” gains and not pay taxes on the exempt Rs 1 Lakh of LTCG.

At a 10% LTCG tax rate, you could save up to Rs 10,000 in LTCG taxes every year by doing this diligently. 

 

Ben Franklin famously said, “Nothing is certain except for death and taxes.” and Margaret Mitchell exclaimed, “Death, taxes and childbirth! There’s never any convenient time for any of them.

Yes, no one likes paying taxes!

We, however, encourage every citizen to pay their rightful taxes for nation-building. That said it is also our responsibility to our financial future and to our children, to take advantage of tax breaks written in the tax code.

Let’s see a simple example of how LTCG Tax Harvesting works.

 

By harvesting Rs 1 Lakhs of LTCG every year, you reduced your LTCG Tax burden from Rs 20k to NIL.

This is the power of LTCG Tax Harvesting and we are bringing it to you. 

 

How Tax Harvesting works?

It’s simple. We take over once you unlock the Tax Harvesting feature on Kuvera.

We monitor your portfolio and recommend a transaction when applicable. We use sophisticated modelling to decide when is the right time to harvest taxes. Then we recommend the transactions you need to execute to harvest LTCG.

As mentioned above, there are two opposing forces –

1. If I wait and the markets go up, I can harvest more taxes (something like 2017).

2. If I wait and the markets go down, I would have lost the opportunity to harvest the gains I had (something like 2018). And since tax harvesting is tied to the calendar year, once that opportunity goes, it won’t come back.

We run an optimization that solves for the above to ensure that you can harvest the optimal level of taxes as soon as possible.

The power of LTCG tax saving is now on your fingertips. Try it now.

 

Frequently Asked Questions

 

(Q) Why can’t I wait till Feb – Mar and harvest then?

(A) We would advise harvesting taxes as early in the Financial Year as possible.

There are two opposing forces –

1. If I wait and the markets go up, I can harvest more taxes (something like 2017).

2. If I wait and the markets go down, I would have lost the opportunity to harvest the gains I had (something like 2018). And since tax harvesting is tied to the calendar year, once that opportunity goes, it won’t come back.

We run an optimization that solves for the above to ensure that you can harvest the optimal level of taxes as soon as possible. Waiting after the optimal condition is met only increases the likelihood that the LTCG may not be there in the future to harvest.

 

(Q) I have subscribed to Tax Harvesting and I have a family account. Will my subscription cover all accounts?

(A) Tax Harvesting is enabled based on the taxpayer PAN. Say for example a husband and wife have 4 accounts –

  1. Wife’s Single
  2. Husband Single
  3. Wife + Husband Joint
  4. Husband + Wife Joint

If the Wife then enables Tax Harvesting in her account it will also enable it for Wife + Huband Joint account as for tax filing purposes LTCG in both the Wife and Wife + Husband account will be attributed to Wife’s tax returns. So, you will have to enable Tax Harvesting individually for every taxpayer in your family. In our example, it would mean to enable Tax Harvesting for Wife and Husband separately.

 

(Q) I have a few funds with considerable profits, but Tax Harvesting never recommends harvesting tax in them? 

(A) Even if you have funds with considerable Long Term Capital Gains, there could be reasons why we don’t show them for Tax Harvesting. Chief among those reasons are –

  1. The fund is still under lockin. This is particularly true for ELSS and other speciality schemes.
  2. The fund house does not allow lumpsum purchase in the fund. For efficient tax harvesting, you have to be able to buy back the scheme at the same NAV.

 

(Q) If I sell now to harvest LTCG, will I lose out on future profits from that investment?

(A) Not at all. As part of Tax Harvesting, we will advise you to sell the units and buy it back with no NAV impact. So you will still get the benefits of all future profits if that investment continues to go up.

 

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#MutualFundSahiHai, #KuveraSabseSahiHai!

3 Responses

  • Rupesh

    July 5, 2019 AT 17:38

    So you will still get the benefits of all future profits “if that investment continues to go up.”
    There is an “if” condition there. If the future performance of that fund is in loss, you lose in a big way.


    • Gaurav Rastogi

      July 6, 2019 AT 06:03

      Not correct Rupesh, unless we are not understanding your question correctly.

      If the future performance is a loss, you get to show higher LT or ST Capital Loss to offset any other STCG / LTCG you may have. The tax harvested is always and in every scenario a net positive. And since we will only advice you to harvest up to Rs 1 lakh, you won’t need to pay any taxes on it in the current financial year.