Tax loss harvesting: Reduce tax liability, improve quality of portfolio

Transaction costs, price fluctuations may nullify the benefits of this exercise

Every investment cannot be a winner. Fortunately, loss-making investments have a silver lining  — tax-loss harvesting.

Investors can sell a part of the stocks, mutual funds, exchange-traded funds, and other securities held in their portfolios at a loss and use this loss to offset tax on the capital gains made on the sale of other securities. Says Adithya Reddy, international tax lawyer: “It is the process of identifying loss-making and profit-making assets and offsetting them against each other.” 

Adds Rajarshi Dasgupta, executive director and national head of tax, Aquilaw: “This strategy can reduce taxable income, which is important for taxpayers in