How to Reduce Long-Term Capital Gains Tax with Short-Term Losses
The long-term capital gains (LTGC) come from the sale of equity mutual funds that are held for over a year and the short-term gains arise from those sold within a year. The long-term and short-term capital losses are also differentiated based on their holding period. The long-term capital gains that exceed ₹1.25 lakh in a financial year are taxed at 12.5% while the short-term capital gains are taxed at a flat 15%.
Short-Term Losses Reduce LTCG Tax Liability
If an investor incurs a short-term capital loss, it can be used to offset the taxable long-term capital gains and assists in reducing the overall tax.
Rules for Offsetting Capital Gains with Capital Losses
- Short-term capital losses offset short-term as well as long-term capital gains.
- Long-term capital losses can only be used to offset long-term capital gains.
- In case the total capital loss exceeds the total capital gain in a year, it can be carried forward for up to eight assessment years.
Things to Keep in Mind
- Maintain proper documentation and keep records of all investment transactions.
- File your ITR on time.
- Review investment goals and avoid selling profitable investments solely for tax benefits.
- Understand tax laws, rates and exemptions so you make informed investment decisions.
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.
Investments in the securities market are subject to market risks, read all the related documents carefully before investing.