Tax Loss Harvesting in India: Save Taxes on Stock Market Losses

The stock market isn't just about making money—it's also about keeping it. And yet, most investors focus so much on chasing profits that they forget about the silent leak in their portfolios: taxes.

Every time you make a winning trade, the tax department takes its cut—20% on short-term gains and 12.5% on long-term ones, after the ₹1.25 lakh exemption (as per the Union Budget 2025). But what if you could legally pay less?

They say every cloud has a silver lining, and in investing, that silver lining is tax saving on stock losses or tax loss harvesting—the financial equivalent of turning lemons into lemonade. 

When a stock isn't performing well, most people either hold onto it, hoping for a turnaround or sell it in frustration. But smart investors know there's a third option: using those losses to offset taxable gains. Instead of just taking the hit, you reduce your tax bill—making even a bad trade worth something.

This article is here to help you understand the ins and outs of tax loss harvesting. So the next time the market doesn't go your way, don't just cut your losses—use them to your advantage. 

Table of Contents:

• What is Tax Loss Harvesting?
• Understanding Capital Gains & Losses in India
• Benefits of Tax Loss Harvesting
• Rules & Restrictions of Tax Loss Harvesting in India
• How to Track & Plan Tax Loss Harvesting Using Finology Ticker

What is Tax Loss Harvesting?

Every investor has that one stock—the one that seemed like a brilliant idea but now just sits there, bleeding red and mocking your portfolio. It's tempting to hold on, hoping for a miracle recovery, and it is equally as tempting to sell the stock and be done with it. 

But there's a way for you to make that loss-making stock work for you. Yeah, you heard that right. With the help of tax loss harvesting in India, you can turn bad trades into tax-saving opportunities.

Think of it like clearing out clutter. Just as you get rid of things that no longer serve you, selling underperforming stocks frees up space in your portfolio and helps cut down your tax bill. The process is simple: book a loss, use it to reduce taxable gains and reinvest in a similar (but not identical) stock to stay in the game. Instead of losses being just painful, they become a smart tool to balance your investments and taxes.

This isn't about taking unnecessary risks or chasing trends. It's about playing the long game—where even setbacks have value. 

Now, let's understand how tax loss harvesting helps you save money with an example.

Suppose you invested in two stocks:

• Stock A: Bought in June 2024 and sold in October 2024 for a profit of ₹1 lakh. Since you held it for less than a year, this is considered Short-Term Capital Gains (STCG) and is taxed at 20%.
  
  Tax payable: ₹1,00,000 × 20% = ₹20,000
   
• Stock B: Bought around the same time as stock A but didn't perform well. You sold it after six months at a Short-Term Capital Loss (STCL) of ₹60,000.
  
  Tax payable on stock B: ₹0 (since it's a loss)

Now, instead of paying tax on the full ₹1,00,000 gain from stock A, you can offset it with the ₹60,000 loss from stock B. That means your taxable gain is reduced to ₹40,000 (₹1,00,000 – ₹60,000).

• Revised tax payable: ₹40,000 × 20% = ₹8,000

By using tax loss harvesting, you save ₹12,000 (₹20,000 – ₹8,000) in taxes—just by making the most of your losses. 

In this example, the losses are less than your gains. However, when losses are higher than gains, they don't just vanish. Instead, they can be carried forward and used to reduce future tax liability. 

This is a key way in which stock market losses benefit investors. This helps lower their capital gains tax in India over time. The law allows these losses to be carried forward for up to 8 assessment years, ensuring they don't go to waste.

Here's how it works: 

• If losses are greater than gains, the extra losses can be used in future years.
   
• To qualify, investors must file their Income Tax Return (ITR) on time for the year in which the loss occurs.
   
• STCL can be used to offset both STCG and Long-Term Capital Gains (LTCG).
   
• LTCGs can only be reduced using Long-Term Capital Loss (LTCL).

Understanding how to offset stock losses is a crucial part of tax planning for investors. Instead of seeing losses as dead weight, they can be treated as a financial tool that helps reduce future tax payments, making investing more efficient and rewarding in the long run.

Understanding Capital Gains & Losses in India 

Investing in the stock market comes with tax implications. Profits made from selling stocks are categorised as capital gains, while losses are referred to as capital losses. Knowing how these are taxed and how they can be offset is essential for effective tax planning for investors.

Here's a table that will help you understand the types of capital gains and losses.

Understanding these rules helps investors make informed decisions and optimise their capital gains tax in India, ensuring that every trade—win or lose—works in their favour.

Benefits of Tax Loss Harvesting

Nobody likes paying more tax than necessary, and tax loss harvesting in India is one of the smartest ways to cut down tax bills legally while keeping investments on track. Here are some of the benefits:

1. Pay Less Tax: One of the biggest advantages of tax loss harvesting in India is that it helps investors reduce their capital gains tax in India. By offsetting capital gains with capital losses, investors can significantly lower the taxes owed on their profits.
    
2. Carry-Forward Losses: If an investor doesn't have enough gains to offset losses in a particular year, they can carry forward both STCL and LTCL for up to 8 assessment years. This ensures that even if there are no immediate gains, future profits can still benefit from past losses.
    
3. Offset Both Short-Term & Long-Term Gains: Investors have flexibility in how they use their losses. STCL can be offset against both STCG and LTCG, making it a powerful tool for tax efficiency. However, LTCL can only be set off against LTCG.
    
4. Rebalance Portfolio: Tax loss harvesting isn't just about taxes—it also helps refine investment strategy. Selling underperforming stocks allows investors to:

• Reduce tax liability by realising losses.
• Reinvest in better-performing assets, ensuring a more balanced and profitable portfolio.

By strategically using how to offset stock losses, investors turn setbacks into opportunities, making tax loss harvesting a crucial part of tax planning for investors.

Rules & Restrictions of Tax Loss Harvesting in India

Watching an investment lose value is never pleasant, but it doesn't have to be a complete loss. If you sell an investment at a loss, you can use that loss to offset your capital gains, lowering the tax you owe. But the tax system has clear rules:

1. STCL can offset both short-term and long-term gains, making them highly flexible.
    
2. LTCL can only offset long-term gains. They cannot be used against short-term gains.
    
3. If you can't use the losses this year, you can carry them forward for up to 8 years. However, you must file your income tax return on time to claim this benefit.
    
4. Selling a stock at a loss and immediately buying it back can lead to tax disallowance. To avoid this, consider waiting before repurchasing or investing in a similar stock.

Used wisely, tax loss harvesting can turn investment setbacks into future savings, helping you manage your taxes efficiently.

How to Track & Plan Tax Loss Harvesting Using Finology Ticker

Tax loss harvesting works best when planned properly. Finology Ticker makes it easier by helping investors track their portfolios, identify losses, and reduce tax liability before the financial year ends.

Before 31 March, it's important to check your unrealised gains and losses. Ticker's portfolio tracking tools help you see which stocks are in profit and which ones are in loss, making it easier to decide what to sell for tax benefits.

Here's how you can pick stocks for tax loss harvesting:

• Look for stocks that have dropped in value and are unlikely to recover soon.
• Compare your buying price with the current market price to see how much you could claim as a loss.

Just don't make these mistakes:

• Don't sell a strong stock just to save on taxes if it has good long-term potential.
• Avoid buying back the same stock immediately after selling—it may not count as a valid loss for tax purposes.
• Don't forget to claim carry-forward losses in future tax filings.

With the right approach, tax loss harvesting can help reduce taxes without affecting your investment goals.

Conclusion

Every investor faces losses, but smart investors turn them into tax-saving opportunities. With tax loss harvesting, you can offset capital gains, reduce your tax liability, and even carry forward losses for up to 8 years. However, manually tracking stocks, calculating tax offsets, and ensuring compliance can be overwhelming.

That's where Finology Ticker makes a difference. It helps you identify loss-making stocks, calculate the losses via smart portfolio and helps you pick great stocks to minimise losses. 

Use Finology Ticker to simplify tax loss harvesting and keep more of your hard-earned money.

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