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Tax Harvesting: The Income Tax Department is keeping an eye on the method of saving tax through mutual fund investment. Through tax harvesting, investors try to save tax by showing losses. This trick is quite popular these days. But, it may also prove costly. Due to this you may become a victim of income tax notice. Know how you are at risk of tax notice on mutual fund redemptions and no CA will be able to save you from it once you get the notice.
What is tax harvesting?
Tax harvesting means saving tax by using losses incurred on your invested capital. In this, investors show losses to reduce tax on long-term or short-term capital gains.
Why is the Income Tax Department keeping an eye on tax collection?
The Income Tax Department keeps an eye on whether investors are deliberately showing losses to save tax. Doing so may be illegal under the rules.
How does tax harvesting work?
You can sell your loss making shares or mutual funds and invest them back in the same fund. This compensates for the loss and also saves tax.
What investments are involved?
Tax harvesting generally applies to equity shares, mutual funds and other capital assets that generate long-term or short-term capital gains.
Which mistakes should be avoided?
Avoid showing losses again and again. Keep records of your investments. Follow tax rules.
What to do to save tax?
Audit your investments at the end of the year. Plan to reinvest in the same asset even after losses. Consult with the right tax advisor.
How to avoid income tax notice?
Follow income tax rules properly and maintain transparency in tax harvesting. Incorrectly reporting losses can result in heavy fines and notices.