When should you sell profitable equity mutual fund investments for tax-gain harvesting?
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Selling equity investments
Are you wondering if you should sell equity holdings of Rs 10 lakh to harvest long-term capital gains when the objective is to use tax-gain harvesting to utilise the carried-forward capital loss of Rs 5 lakh? Here is help for you, as reported by ET Wealth.
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Smart move
Rushabh Desai, Founder, Rupee With Rushabh Investment Services, said tax-gain harvesting is a smart move and since one does not need liquidity, executing this trade allows you to reset the cost basis of your investments completely tax-free.
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Condition for set-off
The expert said long-term capital loss (LTCL) incurred from the sale of immovable property can be set off against long-term capital gains (LTCG) from equity shares or equity mutual funds.
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Cost calculation
Considering the total holding of Rs 10 lakh with an overall gain of 56%, the original cost comes to Rs 6.41 lakh and LTCG comes to Rs 3.59 lakh. With the property LTCL at Rs 4.75 lakh, your tax due becomes nil.
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Action on remaining portion
Post calculating, the expert said that one still has Rs 1.16 lakh of property LTCL remaining, which you can carry forward and set off in future years (8-year limit).
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Option 1
Based on risk appetite, investment horizon and financial goals, the expert said that the first option is to rebalance into fixed income/debt products like bank fixed deposits, and/or high-quality corporate bond debt funds to reduce portfolio volatility.
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Option 2
The second best option according to the expert is to reset your equity cost basis and reinvest directly back into your core equity mutual funds to maintain your long-term equity strategy.