Weekend Investing Daily Byte – 27 March 2025

March 27, 2025 6 min read

March has been a strong month for the markets, with significant rallies off the lows. While there have been some hiccups in the past couple of sessions, that’s completely natural after a six-day rally. A few days of brief pullbacks are expected.

Today’s Discussion: Last Few Days for Tax Harvesting

Now, let’s dive into the topic for today – tax harvesting. Some of you might already be familiar with it, while others might be hearing about it for the first time. Don’t worry; we’ll break it down and discuss what tax harvesting is, how to do it, and when it should be done.

Where is the market headed?

Market Overview

Looking at the markets, we’ve seen a rapid recovery from the 22,000 base, reaching over 23,800 just two days ago. Despite two days of downward movement, we’ve already recovered almost half of the losses. Currently, the market looks very bullish. If we break past the 23,800 level, we could witness a significant surge. This could play out as an inverted head-and-shoulders pattern with a tight right shoulder, which could lead to an explosive upside.

If we continue to trend higher, it could be an excellent time for short-term traders to take a position, with stops set at around 23,400. On the other hand, if the market pulls back, it may find support near the 22,000-23,000 range.

In the broader market, Nifty50 is up by 0.45%, and we’re positioned well according to our strategy.

Nifty Next 50

Nifty Junior has gained 1.5%, showing strong recovery

Nifty Mid and Small Cap

while mid-caps have been slower, up 0.36%. Small caps are showing promising gains, up 0.95%

Nifty Bank Overview

The Bank Nifty is doing exceptionally well, up 0.72%.

GOLD

Gold is also on a strong upward trajectory, gaining 1% today and nearing 89,000 again. With the dollar moving in favor of gold, we may see prices push toward 3,200-3,300 in the near term.

Advance Decline Ratio

The market breadth is improving, with the advance-decline ratio at 330 to 170, showing more advances than declines compared to previous sessions.

Heat Maps

The heatmap for today is largely green, with stocks like Bajaj Twins, HDFC Life, UltraTech Cement, and Wipro all performing well. On the flip side, stocks like Tata Motors, which has been impacted by the 25% additional tariff executive order signed by Trump, are seeing declines.

Sectoral Overview

In the sectoral performance, PSU banks have been on fire, with an impressive 2.5% gain today, 4.2% for the week, and 8% for the month. Defense and capital market stocks have also performed well. On the other hand, auto and pharma sectors have seen some declines.

Sectors of the Day

Nifty PSU Bank Index

Story of the Day – The Importance of Tax Harvesting

This strategy is a legal and strategic method to reduce your capital gains tax. If you’ve made gains this year, you could consider tax harvesting, especially if you’re also holding some losing positions. By selling the losing positions, you can use the loss to offset your gains and reduce your taxable income.

It’s essential to note that tax harvesting works only if you have capital gains in the first place. If you’re in a loss position, tax loss harvesting may be more applicable. Tax harvesting allows you to carry forward any unused losses for up to 8 years, providing flexibility for future tax planning.

Tax Loss vs. Tax Gain Harvesting

There are two types of tax harvesting strategies: tax loss harvesting and tax gain harvesting.

  1. Tax Loss Harvesting: This involves selling stocks that have incurred a loss to offset gains from other investments. By realizing these losses, you can reduce your taxable income for the year. If you have more losses than gains, the excess losses can be carried forward for up to 8 years.
  2. Tax Gain Harvesting: If you have capital gains of up to 1.25 lakh, you can sell stocks and use this tax exemption to avoid paying long-term capital gains tax. By doing this, you save 12.5% tax on the gains. For example, if you booked a gain of 1.24 lakh, you can sell those shares, book the gain, and not pay any tax due to the 1.25 lakh exemption. You can then buy the same stock back the next day, resetting your cost base.

The March Deadline for Tax Harvesting

The deadline for tax harvesting is March 31st, which marks the end of the financial year. There are two schools of thought regarding the accounting of transactions:

  1. Transaction Date Accounting: If you conduct a transaction on March 31st, it counts as part of the current financial year.
  2. Settlement Date Accounting: If the transaction settles by March 31st, it counts as part of the current financial year. This means if your trade is settled by March 31st, it will be considered in the current year’s books.

For simplicity, I recommend sticking with transaction date-based accounting. It makes tax harvesting a bit easier to navigate.

How to Use Tax Harvesting Effectively

  • Tax Loss Harvesting: If you have short-term or long-term capital gains, you can sell stocks or mutual funds at a loss to offset those gains. If you have more losses than gains, you can carry the loss forward for the next 8 years.
  • Tax Gain Harvesting: If you have up to 1.25 lakh in capital gains, you can book those gains and avoid paying any long-term capital gains tax.

It’s important to note that when you sell to realize a loss, you can buy the same position back the next day, which is beneficial for your portfolio without missing out on the investment.

Risks and Considerations

There is a small risk involved with tax harvesting, especially if you sell and the stock price rises the next day. However, the risk is relatively low, and the strategy can save you a significant amount on your taxes.

One crucial point is that you must file your Income Tax Return (ITR) on time to carry forward any losses. Failure to do so means you won’t be able to carry forward the losses.

Final Thoughts

Whether you’re using tax loss or tax gain harvesting, the goal is to minimize your tax liability and optimize your returns. However, it’s always a good idea to consult with a tax expert before making any decisions.

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    Weekend Investing Daily Byte – 27 March 2025