Definition
Tax-Loss Harvesting
Tax-loss harvesting is the practice of selling investments at a loss to offset taxable capital gains, reducing the overall tax bill while staying invested in a similar position.
Tax-loss harvesting involves realising losses on losing investments to offset capital gains elsewhere, lowering the net taxable gain. In India, short-term and long-term capital-loss set-off and carry-forward rules govern how such losses can be used.
Investors often book losses near year-end and reinvest in similar (not identical) assets to keep market exposure. Direct ownership of stocks (as in direct indexing or smallcases) makes this easier than pooled funds.
It is a legitimate tax-management tool, but must follow the Income Tax Act's set-off rules and avoid being purely artificial. It does not apply to crypto, where the no set-off rule disallows loss offsetting.
Related terms
- No Set-Off Rule (Crypto)Under India's VDA tax rules, a loss from one crypto asset cannot be offset against gains from another or against any other income, nor carried forward. This is informational, not advice.
- SmallcaseA smallcase is a ready-made basket of stocks or ETFs built around a theme or strategy that investors can buy in one click through their broker, holding the securities directly.
- Direct IndexingDirect indexing means owning the individual stocks that make up an index in your own account, rather than buying an index fund or ETF, allowing customisation and tax management.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.