In my article on how to book losses by adjusting profits from other investments, I had a question that hit my inbox and in comments is what are the investment profit options that can be adjusted to book losses from stocks from a taxation point of view.
So let me share with you the profits which can be adjusted for short term capital losses in stocks.
There are 2 kinds of loss in stock market from a taxation point of view. Long term losses and short term losses. We will look into what short term capital losses that can be can be adjusted to gains from.
Note: These are from a taxation point of view are not necessarily to adjust losses to profits for coming out of a bad investment.
1. Short term equity gains from stocks
Equity investment short term is under 1 year and long term gains are investments for more than 1 year. You can always adjust your short term gains in stocks to your short term losses to save tax.
2. Short term gains in equity funds
Similar to stocks, equity funds short term is under 1 year and the long term is for investment of more than 1 year. You can adjust your short term capital gain from your equity funds against short term losses.
3. Short term gains from debt funds
Debt mutual funds short term is for investment under 3 years and the long term is for investment more than 3 years. So your short term profits from debt mutual funds can be adjusted to short term losses in stocks. So if you are booking profits in debt fund under 3 years, the profit can be adjusted against short term losses.
4. Gains in fixed maturity plan or FMPs
FMPs are similar to debt fund but are closed ended debt fund with a fixed maturity date. So taxation rules of debt funds apply. Under 3 years and it is short term gain which can be adjusted agains short term losses from stocks.
5. Gold ETFs
You can invest in Gold ETF’s and the gains are treated similar to equity investments for taxation purpose. You can checkout my views on the best gold ETF in India.
6. Real estate
Real estate gains are also classifieds as short term capital gains if sold within 3 years of registration. You can adjust short term capital gains from real estate investment to adjust against your short term losses in stocks.
7. Physical gold and silver investments
Physical gold or silver can have short term capital gains if sold within first 3 years of investment and profit is taxable for short term capital gains which can be adjusted for loss from stocks.
My way of Saving Tax
If I see I have made some short term equity profits in my trading account, but if there is an investment which I did recently for the long term but am yet to make any profit and possibly making some losses. So I sell it to book a loss and then buy back the same stocks in the next few days. Loss I make on such investment can be adjusted against my gains.
Note that I am not selling stocks that are giving me long term capital losses (if any) but only those that are having short term capital losses and this is only for taxation purpose. Make sure you know what you are doing and not dump all your loss making stocks only to show taxation loss.
Remember when you go about selling a stock and buying back. Take care not to conduct both transactions on the same day. It may not be taken as sell and buy but speculation. In many countries there is a 30-day gap between the sale and subsequent purchase of shares to save tax but there is no such rule in India. To be on the safe side it is better if you wait for a couple of days before you buy back shares. I prefer to buy back after my shares are out of my demat account.
If you are holding your losses but booking profits, you may be paying taxes on your gains, are you paying more taxes, can you adjust them for a loss? Evaluate your accounts and see if you can save some tax.