BackITR filing: How loss harvesting in IT stocks may help you contain income tax in FY24
ITR filing: It's easy to find loss harvesting stocks from IT segment as Nifty IT index has shed 17.5% in last one year and it is still looking weak on chart pattern, say experts
PremiumITR filing: With the beginning of new financial year, an income taxpayers first job is to start financial planning and look at all avenues that can save one's money. Finding out income tax saving options are one of them. For a stock market investor, it is little tricky today as most of the small-cap and mid-cap stocks are available at discounted prices and hence long term investors have to accumulate further to do the averaging and wait for bounce back in their portfolio stocks. However, from income tax return (ITR) perspective, portfolio stocks at discounted price provides a window of opportunity to stock market investors, especially IT stocks as in last one year, Nifty IT index has shed to the tune of 17.50 per cent and most of the IT stocks are available at discounted price today.
According to tax and investment experts, due to sell off in IT stocks in last one year, stock market investors having exposure in IT stocks has an opportunity to take advantage of current IT stock positions sing loss harvesting strategy. They said that stock investors needs to find out loss harvesting stocks from the IT segment as they are expected to continue under pressure in near term after US Fed flagged off economic slowdown jitters due to bank crisis in US. as the financial year 2023-24 has just begun and IT stocks are expected to remain weak, especially after the below par TCS and Infosys Q4 results, IT stock investors can book loss at current levels and re-enter at lower levels again. This will enable to set off the capital loss against the capital gains while filing their income tax return (ITR) for the financial year 2023-24. However, they advised taxpayers to avoid timing the market after booking the loss in their stock positions.
How loss harvesting stocks can contain income tax
Explaining the income tax rules in regard to loss harvesting stocks, Vinit Khandare, CEO & Founder at MyFundBazaar said, "Investing in equity funds, an investor is known to make capital gains - taxable based on how long one stays invested in the particular fund. However, in tax-loss harvesting, the investor sells their stocks/fund units at a loss to reduce their tax liability on capital gains - a lucrative method to offset the capital gains made on equity against the capital loss suffered to pay a lesser amount of tax. Additionally, a few factors need to be kept in mind in tax-loss harvesting - a long-term capital loss can be set off only against only long-term capital gains."
Vinit Khandare of MyFundBazaar went on to add that the investor cannot set off long-term capital losses against short-term capital gains. Whereas short-term capital losses can be set off against either short-term capital gains or long-term capital gains - a method to offset the capital gains made on equity against the capital loss suffered to pay a lesser amount of tax.
Why IT stocks are ideal for loss harvesting strategy?
Advising taxpayers to look at IT shares to find out loss harvesting stocks, Avinash Gorakshkar, Head of Research at Profitmart Securities said, "IT stocks are more ideal as most of the IT stocks are available at discounted price and these stocks are expected to remain under pressure for next one to two quarter as US Fed has raised concerns about the looming economic slowdown due to bank crisis in US. Due to this, US dollar driven stocks like IT is expected to remain under pressure as they draw around 40 per cent of their business from the BFSI sector."
In last one year, Nifty IT index has shed from around 34,350 levels to 28,342 mark. Among top 5 Indian IT stocks — Infosys, TCS, Wipro, HCL Technologies and Coforge — Wipro share price has shed to the tune of more than 30 per cent in last one year whereas Infosys shares have shed around 15 per cent while TCS share price has corrected around 10 per cent in last one year.
Speaking on Nifty IT index outlook, Sumeet Bagadia, Executive Director at Choice Broking said, "Nifty IT index is looking weak on chart pattern and it may become further weak if the index breaches the current support placed at 28,300 levels. IT stocks are expected to attract buying interest by market bulls only when the Nifty IT index gives breakout above 29,100 levels."
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
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