How you can save Tax on Market Losses?

Hence the losses made in short-term investments as defined by the periods mentioned earlier may be considered against both as a long term or short term investment. Long-term losses in investments on the other hand will however be only set against long term investments.

To get a better understanding of how it affects your income tax read the following slab

1. For shares that have been listed the short-term capital gains tax rate is calculated at 15% whereas for long-term capital gains that taxation is 0%. Hence, making you liable for no tax at all.
2. For equity mutual funds the short term capital gains are calculated at the rate of 15% against and for long-term capital gains again the tax is not levied at all.
3. For FMPS as well as debt mutual funds, the short-term capital gains taxation is calculated at 33. 6%, whereas the long-term capital gains tax is computed at the rate of less than 10 percent of non-indexed entities and 20% of the indexed entities.
4. For real estates and gold long-term capital gains tax is computed at the rate 20% of the indexed entities, whereas for short-term capital gains taxation is calculated at 33. 6%.

All the taxation is calculated on only those assets which have been sold in that fiscal year a set of equities or Gold ETFs. So, if there are shares that are yet to be sold post Budget 2016, one does not have to consider those. To gain from your losses when it comes to your taxes, you have to keep it in mind to book capital gains which can be considered short-term investments only. You need to closely analytically study and determine whether the assets in question are to be kept or sold. The fundamental idea at the moment is to minimize your tax liability.

How To Reduce Tax Liability with Losses (Example)?

Let us take Mr. Sharma’s portfolio as an example to illuminate this strategy. He has a portfolio that is worth Rs. 20 lakhs which is invested in stocks and mutual funds. He made these investments around 2007 and 2008 when he had a lot of money but the global markets were hit with the recession.

But with the recent losses in the equity market, he made a loss of approximately Rs. 6 lakhs from his portfolio. He has now left with Rs. 14 lakhs and he is expecting that in a few years he will be able to gain back his losses, which has a very high chance of happening. But due to the loss experienced this year, he is not being taxed at all on his current portfolio and for the fiscal year.

He could just sell off some of his investments and create a new investment portfolio altogether, completely fresh. We also are aware that what one earns from a real estate sale, if immediately invested on a new real estate asset, will immediately allow this amount to stay tax-free.

However, all this is a matter of timing and the will to make these quick re-investments. One cannot simply create a guaranteed and full-proof plan to gain back their losses but they can surely utilize it to save some more expenses such as taxes if they can be done strategically and ethically.