Most investors take advantage of the tax exemption/deduction strategy or invest in an ELSS fund while filing their ITR returns. A little-known but highly useful approach is called tax-loss harvesting. Let’s learn all about tax loss harvesting to optimise your ITR Filing like a pro.
What Is Tax-Loss Harvesting? A Simple Explanation for the ITR Filing Season
Due to the current volatility of the stock market, tax-loss harvesting is more important now than in the past. In the current gold and silver market, investors are likely to have a heightened tax obligation if they book profits.
However, if you have an unrealized loss in another investment, the loss can offset the gains you have in your portfolio, and you can reduce the tax liability you have to declare in your Income Tax Return.
Tax-loss harvesting is a strategy designed to offset taxable gains in your portfolio with losses in another investment.
Why Tax-Loss Harvesting Is Especially Relevant This Year?
If you made a profit from trading gold/silver and your stock trading portfolio is at a loss, you can sell the stocks to claim the losses. That will offset your profits from the commodities, lowering your tax obligations right before you file your ITR.
What if you have only losses in the year? The good news is that the losses can be cumulatively used to offset your tax obligations for a maximum of 8 years in India.
Why You Should Consider Tax-Loss Harvesting This Year?
The financial year 2025-26 displays asymmetric performance across different asset classes:
Equities: Many investors face volatility and underperformance
Gold and Silver: impressive performance, thereby creating an adverse tax situation
This situation presents an opportunity for tax-loss harvesting. If you have made losses on equities but made gains in gold and silver, you can use the losses in equities to offset gains in gold and silver. Gains in gold and silver can be taxed at 30%. This means that if you are planning on losses on equities, you can offset the gains and pay lower taxes at the end of the year.
A Real-World Tax-Loss Harvesting Example
Let’s look at an example with real numbers.
- Imagine an investor makes.
- Profits of ₹6,00,000 from gold and silver
- Losses of ₹6,90,000 in equities
The investor, by using ₹6,00,000 of those losses, nullifies the tax completely on the gains from commodities. The investor still has ₹90,000 of losses, which can be carried forward.
Let our experts help you apply this strategy in your ITR filing.
Should You Use the Loss Now or Carry It Forward? The ITR Filing Math
This is where tax-loss harvesting becomes exciting and somewhat paradoxical.
An average investor would probably try to use the remaining ₹90,000 loss to bring their current-year tax to zero.
Let’s calculate it:
| Strategy | Tax This Year | Tax Next Year | Total Tax |
| Use all losses now | ₹0 | ₹45,000 | ₹45,000 |
| Carry ₹90,000 forward | ₹3,125 | ₹21,000 | ₹24,125 |
Net saving by carrying forward = ₹20,875
If you use the ₹90,000 loss today against equity gains that are taxed at 12.5%, you only save about ₹10,000. However, if you save that loss and use it next year against gold gains that are taxed at 30% instead, you would save ₹24,000.
Sure, you would have to incur a small tax of ₹3,125 this year, but you would save a lot more next year. That is smart ITR filing, not only for the current year, but for the future as well.
Important Cautions Before You Harvest Losses for ITR Filing
- Tax-loss harvesting can be extremely beneficial, but it needs to be done with care. Here are some things to consider:
- Do not sell a quality stock to realize a loss. While it is good to consider how a stock is performing, it should not dictate your tax-saving strategies. If a stock is volatile but is underpinned by strong fundamentals, it is typically better to hold it.
- When looking at a loss, think about future gains. Losses can only be carried forward to offset future gains, so without expectation of future gains, an unreferred loss is of little value.
- Think about outcomes other than the end of the year. The best results often come from good, continual management of your portfolio, rather than a single review at the end of the year.
Tax-Loss Harvesting and ITR Filing: What You Should Do Today
So now is the end of the financial year, which means it is time to do the following tasks:
- Examine your portfolio and determine which investments have the biggest unrealized losses.
- Look for gains that can be used for offsets, especially if gold, silver, or some other assets had strong FY 2025-26 returns.
- Decide if losses should be used or carried forward based on the calculations in the previous section.
- When filing your ITR, be sure to report capital losses so that they can be carried forward if applicable.
The Bottom Line on Tax-Loss Harvesting
In conclusion, Tax-loss harvesting is more than a tax trick; it’s a long-term portfolio management strategy that, when done correctly, positively impacts your future ITR filing cycles.
Due to the current market volatility and gold performance, tax-loss harvesting is one of the most underutilized strategies this tax filing season, and could bring great benefits.
While most may see a tax loss as the end of the road, the right tax filing strategy can open doors to more tax savings over time.
FAQs – Tax Loss Harvesting
1. What does tax-loss harvesting mean, and how does it affect the filing of an income tax return?
Tax-loss harvesting involves the selling of an investment (stocks, for example) for a loss so that the loss can offset the taxable capital gains of another investment (for example, real estate) that has yielded a profit. When it’s time to file the income tax returns (ITR), the losses can be claimed to offset gains and reduce taxable income. For example, one could have a gain from a gold investment and a loss from a stock investment. Such a person is entitled to use the loss from stock investment to offset a gain from gold investment — one is entitled to pay tax only on the net gain, as well as the option of not paying taxes.
2. When filing an income tax return, can losses from capital gains be carried forward to the next tax year if no gains were made in the current tax year?
Yes, of course. There is the option to book the losses even if in the tax year that is current, no gains were made. There is a limit of an 8 year period for the maximum time of loss carryforward (for tax purposes). Each year, losses that have been carried forward, when filing income tax returns, can be applied to gain in that specific tax year. This makes tax loss harvesting a conceptual tool for long term planning instead of a tool for short term tax saving.
3. Are there certain capital losses that cannot be utilized when tax-loss harvesting is done?
Tax-loss harvesting can be utilized for both short-term capital losses (STCL) and long-term capital losses (LTCL), but there are limitations. STCL may be used in offsetting both STCL and LTCL. LTCL may be used only in offsetting LTCL. When you intend to apply tax-loss harvesting when filing your income tax return, do not forget to check the asset class as well as the holding period.
Q4. Is it advisable to sell solid stocks just for tax-loss harvesting?
No, and this is one of the most central tenets of tax-loss harvesting. Refrain from selling a sound stock that is fundamentally strong to realize a loss for a tax return filing. It is seldom worthwhile to lose a solid long-term growth stock for a short-term tax benefit. Only realize losses on positions that you really want to sell, or that no longer align with your investment objectives.
Q5. When is it most appropriate to do tax-loss harvesting in relation to ITR filing?
In a perfect world, tax-loss harvesting should be done consistently throughout the fiscal year, so you’re not waiting till the last minute in March. The time frame that is most significant, however, is the range from the first month of the year to the last month of the fiscal year, which is the time right before the fiscal year is about to end. For losses to be brought forward in the ITR filing, you have to sell the asset and realize the loss before the end of the fiscal year. If you do not sell the asset within the fiscal year, you forfeit that opportunity.
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