It’s time to save taxes by setting off equity losses

Book profits, adjust past losses and save on taxes as well. It is that time of the year when you can reduce your tax outgo by setting off gains made from equities in this fiscal against losses of the previous year. The catch here is that profits should be booked before the end of March to avail tax benefits for setting it off against losses.
Current tax laws allow you to set off a short-term capital loss (STCL) against any shortterm capital gains (STCG) or long-term capital gains (LTCG), say financial planners.While STCG and STCL arises when shares and mutual fund (MF) are held for less than a year, LTCG and long-term capital loss occur when they are held for more than a year. If you have neither STCG nor LTCG in the current year, you can carry forward the loss for a period of eight assessment years immediately succeeding the assessment year during which you have incurred the losses.
STCL incurred in the current year can be used to reduce taxes on gains next year. “If you got good gains from your equity or mutual fund (MF) investments this financial year or if you are sitting on losses of earlier years, you can set off this year’s profit by selling your investment before the year-end,” according to Suresh Parthasarathy, CEO and chief financial planner, SPP Wealth and Financial Planners.
If you had lost 50,000 in shares or equity MF investments in 2012-13, you can at least salvage some of it by setting off the loss in the current financial year. For instance, if your gains from shares and equity MFs also work out to 50,000 in 2013-14, you would be able to save about 8,500 in taxes by booking profits and setting it off against the previous year’s losses.
The STCG tax at 16.995% will work out to 8,497 for a profit of 50,000. The only risk involved in this transaction is that if the stock price or the value of the equity fund moves up between your sell and buy dates, you may lose out on interim returns.
“Conservative investors can consider selling on March 31 and can buy the same stock the next trading day,” Suresh said. Investors sitting on losses can also make the best of a bad bargain by booking STCL by March 31. Again, if you buy stocks or equity MFs in April and the market delivers handsome gains in the next fiscal year, you can use the STCL to set off profits to earn tax breaks.