Taxes are something most investors don’t think about until they get hit with a big bill. I was the same. I focused on picking the right stocks and making profits, not on what I owed at the end of the year. But after my first big tax bill, I realized I needed a way to lower what I had to pay. That’s when I learned about tax-loss harvesting.
What Is Tax-Loss Harvesting?
Tax-loss harvesting is a way to use your investment losses to reduce the taxes on your gains. If you make money from selling stocks, you have to pay taxes on those profits. But if you also sell stocks at a loss, you can use those losses to cancel out some or all of your gains.
If I sell a stock for ₹1,00,000 in profit, that amount is taxable. But if I sell another stock at a ₹40,000 loss, I only have to pay taxes on ₹60,000 instead of the full ₹1,00,000. This means I keep more of my profits instead of giving a bigger portion to taxes.
Even if I don’t have gains that year, I can still use up to ₹3,00,000 in investment losses to lower my taxable income. If my losses are more than that, I can carry them forward and use them in future years.
How I Use Tax-Loss Harvesting to Pay Less in Taxes
Every December, I go through my portfolio to see which stocks I no longer believe in. If a stock is down and I don’t expect it to recover soon, I consider selling it to offset my gains for the year.
I also check if I’ve made profits from selling stocks earlier in the year. If I did, I look for losses that can cancel out those gains.
If I don’t have any gains that year, I still check my portfolio for large losses. Even though I can only use up to ₹3,00,000 to reduce my taxable income, I know I can carry extra losses forward to use in the future.
Avoiding the Wash Sale Rule
One mistake I made early on was selling a stock at a loss and then buying it back too soon. That’s when I learned about the wash sale rule.
If you sell a stock at a loss and buy the same stock (or a very similar one) within 30 days, you lose the tax benefit. The government doesn’t allow you to claim a loss if you quickly buy the same stock again.
Now, if I want to stay invested in that sector, I buy a different stock or an ETF instead. This way, I don’t break the rule and still benefit from tax-loss harvesting.
When Tax-Loss Harvesting Makes Sense
I don’t use this strategy just for the sake of it. It only makes sense in certain situations.
Good Times to Use It:
✅ If I made profits that year and want to reduce my taxes
✅ If a stock is down and I no longer believe in it
✅ If I need to rebalance my portfolio anyway
When to Avoid It:
❌ If I still believe in the stock long-term
❌ If I haven’t made any taxable gains that year
❌ If the loss is too small to make a difference
Mistakes to Avoid
Not Having a Plan Before Selling
Selling a stock just to harvest a loss is not a good move if I don’t have a plan for what to do next. I always make sure I have a reinvestment strategy before selling.
Forgetting the Wash Sale Rule
Rebuying the same stock within 30 days cancels the tax benefit. I double-check everything before making a move.
Selling Too Much Just for Taxes
Tax-loss harvesting is helpful, but it’s not a reason to sell a stock I still believe in. The focus is always on long-term gains, not just short-term tax savings.
Final Thoughts
Tax-loss harvesting is one of the easiest ways to reduce investment taxes without making big changes to my portfolio. It takes just a few minutes to review my investments at the end of the year and see if I can use this strategy.
If you haven’t looked into this yet, now is the time. Check your portfolio before the year ends. You might be able to save money with just a few simple changes.