What is tax loss harvesting? Tax loss harvesting involves selling investments that have experienced losses to offset gains elsewhere in the portfolio. By realising losses, taxpayers can mitigate their capital gains tax liability, ultimately reducing their overall tax burden. This process is particularly relevant for investors with taxable investment accounts. How does it work? Investors can analyse their portfolios to pinpoint investments that have depreciated. Once losses are identified, investors can strategically sell these underperforming assets. The realised losses can then be used to offset capital gains realised elsewhere in the portfolio, helping to minimise the tax implications of profitable investments. For example, if an investor has made a short-term capital gain of ₹1 lakh this year, heshe will have to pay taxes of ₹15,000. If the same investor holds stocks with an unrealised loss of ₹60,000 and sells them, the short-term capital gain net would come down to ₹40,000. As a result, the investor would have to pay taxes of ₹6,000 only, which is 15% of ₹40,000. The whole exercise would help the investor harvest losses and save taxes of ₹9,000. Benefits for taxpayers By managing losses and gains, taxpayers can optimise their tax liability, leading to a lower overall tax bill. Tax loss harvesting provides an opportunity to review and optimise investment portfolios. Unused losses can be carried forward to offset future capital gains.