Skip to main content

Losses in stock market Investing can reduce your total tax

Buy Gold Mutual Funds

Invest Mutual Funds Online

Download Mutual Fund Application Forms

Prajna Capital Call 0 94 8300 8300 (India)

If you have run up losses in stocks in the market downturn, here's how you can use them to bring down your tax burden



It's a sea of red out there. The Nifty has lost almost 8% in the past 3 months. Even index-based blue chips are trading 30-35% below their 52-week highs. Should you cut your losses or wait for the tide to turn? Selling stocks at a loss is never an easy decision. However, painful as it may be, booking losses could be a smart move for investors wanting to reduce their tax burden.


Here's how it works. You sell the stocks in your portfolio to book losses and then buy back the same stocks the next day. Any loss you make on stocks or equity funds bought less than 12 months ago can be adjusted against gains from certain other investments, including short-term capital gains from stocks and equity funds as well as long-term gains from debt funds and gold ETFs and jewellery. What's more, the unadjusted losses can be carried forward for up to eight financial years.


This doesn't mean that investors should rush out and dump all their loss-making stocks only to book tax losses. Before you embark check when you bought the stocks that are now trading at a loss. Only short-term capital losses from stocks can be adjusted against other gains or carried forward.


Also remember that the sale of stocks and funds is on a first-in-first-out basis. This means the shares you bought first will be deemed to have been sold first. Suppose you bought 500 shares of a company at 150 each in January 2011 and then another 500 at 180 in July 2011. If you sell 500 of those shares at 140 now, you will not be allowed to carry forward the loss because your holding period of the intial tranche of 500 shares has exceeded one year. It is now a long-term capital loss. Since there is no tax on long-term capital gains from stocks, there is also no provision to carry forward the long-term capital losses from this asset class.
Chartered accountant It is possible to carry forward long-term capital losses from stocks if the seller strikes an off-market deal with the buyer and the transaction is not routed through a stock exchange. However, it is difficult to find a buyer who agrees to such a deal. Besides, long term capital losses can be set off only against long-term capital gains.


What are the risks involved?


Selling at a loss involves a risk. What if the stock price shoots up after you have sold? If your intention was to hold the stocks for the long term, you might have to shell out a higher price the next day. To avoid this risk, you can buy more of the stock and then sell them the next day. Under the first-in-first-out rule, it will be deemed that you have sold the shares you bought earlier.


But this strategy is also risky. If the share price falls further the next day, your losses will amplify. Some investors may want to take the upside risk and sell before they buy back the shares. Others may be more comfortable with the downside risk that entails buying more before they sell.


One way to avoid such a risk is to buy and sell your holdings in small quantities. If you have 1,000 shares of a stock in which you want to book losses, spread out your buying and selling in tranches of 100 shares over a period of 10-12 days. Sell 100 one day, then buy them back the next day. Repeat this till you have sold and bought back the entire lot. This way, you can contain the upside and downside risk to just 100-200 shares.


Taking delivery is important


When you go about selling and buying back, take care not to conduct both transactions on the same day. When you do that, you don't actually take delivery of the stocks. Such intraday transactions are treated as speculative by the taxman and can be disputed by the tax department if you want to book losses. In some countries, such as the US, if a taxpayer wants to book losses, there should be a 30-day gap between the sale and subsequent purchase of shares. Though there is no such rule in India, it is best to wait for a day or two before you buy back the shares so that the shares bought previously are out of your demat account before the new shares come in.


Keep the contract notes of the transactions handy. You may need to mention the details of the transactions in the tax form when you file your income tax returns.

 

 

 

Happy Investing!!

 

We can help. Call 0 94 8300 8300 (India)

 

Leave your comment with mail ID and we will answer them

                        OR

You can write back to us at prajnacapital [at] gmail [dot] com

---------------------------------------------

Invest Mutual Funds Online

Transact Mutual Fund Online

Download Mutual Fund Application Forms from all AMCs

Download Mutual Fund Application Forms

Best Performing Mutual Funds

    1. Largecap Funds        Invest Online
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Birla Sun Life Front Line Equity Fund
    2. Large and Midcap Funds     Invest Online
      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
    1. Mid and SmallCap Funds    Invest Online
      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
      3. Sundaram Select Midcap
      4. IDFC Premier Equity Fund
    1. Small and MicroCap Funds             Invest Online
      1. DSP BlackRock MicroCap Fund
    1. Sector Funds              Invest Online
      1. Reliance Banking Fund
      2. Reliance Banking Fund
    1. Gold Mutual Funds             Invest Online
      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund

Popular posts from this blog

Surrender ULPPs

  ICICI Pru LifeTime and ICICI Pru Lifestage are Unit Linked Pension Plans. Such insurance linked retirement plans are neither good investments nor do they offer sufficient insurance cover. As you can see, these have turned out to be bad deals. In the Lifetime plan, the fund value is not even equal to the total premiums that you have paid and in the Lifestage plan your return is just about 6% which is quite low. The mortality charges are as per your age which is why they have increased. Moreover, once these plans matures, you will have to compulsorily opt for annuity (regular income) and the annuity rates are generally modest. Assuming these plans mature in the next one year, it will be wise to surrender the plan now and curb your future commitments.   Before you choose to buy a term plan, you have to consider a few points. You need to insure yourself, only during the time you are working and your family is financially dependent on you. At the age of 59, not all insurance companies w...

ICICI Pru Constant Maturity Gilt dividend

Invest ICICI Prudential Constant Maturity Gilt Fund Online ICICI Prudential Mutual Fund   has announced dividend under the following schemes: Scheme Dividend ( R /unit) ICICI Pru Constant Maturity Gilt-DQ 0.26543239 ICICI Pru Constant Maturity Gilt Direct-DQ 0.27171609 ICICI Pru Q Interval Plan I-D 0.10617296 ICICI Pru Q Interval Plan I Direct-D 0.10703967 ICICI Pru Q Interval Plan I Ret-D 0.10617296             The record date has been fixed as June 13, 2016.   ----------------------------------------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds Top 10 Tax Saver Mutual Funds to invest in India for 2016 Best 10 ELSS Mutual Funds in india for 2016 1. BNP Paribas Long Term Equity Fund 2. Axis Tax Saver Fund 3. Franklin India TaxShield 4. ICICI Prudential Long Term Equity Fund 5. IDFC Tax Advantage (ELSS) Fund 6. Birla Sun Life Tax Relief 96 7. DSP BlackRock Tax Saver Fund 8. Reliance Tax Saver (ELSS) ...

NPS Investment Choice for Safe Investors

Invest NPS Online       Whether they invested through SIPs or put in a lump sum amount, risk-averse individ uals have earned the highest returns. These are investors who stayed away from stocks and divided their NPS corpus between G class gilt funds and C class corporate debt funds. On average, gilt funds have given 9.75% annualised returns while corporate debt funds have churned out more than 11% in the past five years. As a result, the average return for ultra-safe investors in the past five years is in double digits. Even in the short term, ultrasafe investors have been the biggest gainers among NPS investors. Will the good times continue? The gilt funds of NPS are holding long-term bonds with an average maturity of over 19 years and a modified duration of about 9 years.These funds have done well because interest rate cuts have pushed down bond yields. But experts say this trend will not stay forever. NPS is a long-term investment and the bonds are predominantly held to matu...

Buy Health Insurance Plan even if you are covered with my Employer

Buy Health Insurance Plan Online Yes, getting a private insurance cover now, which extends beyond your retirement age, is recommended There are a few reasons why buying a health insurance plan may make sense even though you get medical insurance from your employer. Here are the points you need to think about. Firstly, your employer's insurance coverage will only protect you as long as you are employed with the company. The policy will terminate when you quit the job or when you retire. Post retirement is perhaps the phase when one needs it the most but you won't have it then. Moreover, buying a new insurance policy after the age of 50 means that there will be no coverage for pre-existing diseases.   Lastly, health insurance policy you get from your employer may or may not cover your dependants. ------------------------------ ----------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds Top 10 Tax Saver M...

SBI MAGNUM MIDCAP ONLINE

Invest SBI MAGNUM MIDCAP ONLINE   SBI MAGNUM MIDCAP fund didn't fare well in its initial years but, in recent years, has steadily improved its performance under the capable hands of its current fund manager. Although investing predominantly in mid-cap stocks, the average market capitalisation of its portfolio is lower than other category peers.   Although the stock selection approach is mostly bottom-up , the fund manager doesn't shy away from taking bold sector bets , as is reflected in its large exposure to the healthcare sector. She is equally adept at handling performance across market cycles--the fund has captured more of the upside during market upticks and contained the downside during downturns in a better manner than its peers.   Given its superior risk-reward equation, the fund is a worthy pick in its category.     ----------------------------------------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing EL...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now