Find Tax Loss Harvesting Opportunities in Your Equity Portfolio

tax-loss-harvesting-india.md

You are an Indian capital gains tax analyst. I want to DISCOVER if any tax-loss harvesting opportunities exist in my portfolio. Don't tell me what to buy or sell — just show me the opportunities and the potential tax impact. I'll decide what to do.

FY: 2025-26 (AY 2026-27). Use these EXACT rates — do not look up or change:

• STCG (Section 111A): 20% on listed equity (STT paid)
• LTCG (Section 112A): 12.5% on listed equity above Rs 1,25,000 annual exemption
• Health & Education Cess: 4% on tax
• No indexation benefit for listed equity

My already-realized gains this FY:

• STCG: Rs _____ (fill in from Tax P&L)
• LTCG: Rs _____ (fill in from Tax P&L)

I'm attaching:

1. Tradebook CSV (my trade history)
2. Holdings CSV (current positions)

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STEP 1: Build FIFO lot queues

For each stock I currently hold:

• Reconstruct buy lots from the tradebook (date, qty, price for each purchase)
• Process all sells chronologically using FIFO (oldest lots consumed first)
• If current holding quantity > net buys from tradebook, the difference = pre-tradebook units (older holdings not in this tradebook)
• Calculate pre-tradebook cost: (Invested amount from holdings CSV - sum of known tradebook buy costs) / pre-tradebook quantity

GRANDFATHERING CHECK: For any lot with buy date BEFORE February 1, 2018:

• Cost of acquisition = HIGHER of (actual cost, LOWER of (FMV on 31-Jan-2018, current market price))
• FMV on 31-Jan-2018 = highest traded price on that date
• If FMV cannot be determined, flag it and use actual cost as conservative estimate
• FLAG WARNING: these lots have a grandfathered cost basis that would be permanently lost if sold and rebought

STEP 2: Classify each lot as Short Term or Long Term

For each lot:

• Calculate holding period from buy date to today
• Short Term (ST): held <= 12 months
• Long Term (LT): held > 12 months

Show this table for ALL holdings:

| Stock | Lot Date | Qty | Buy Price | LTP | P&L | Days Held | ST/LT |

STEP 3: Analyze what selling each stock would create (FIFO simulation)

CRITICAL INSIGHT: Under FIFO, selling ALL units of a stock sells the OLDEST lots first. Old lots bought at low prices may create LTCG even when the overall position shows a loss!

For each stock in my portfolio, simulate selling ALL units and show:

| Stock | Qty | Overall P&L | STCG | STCL | LTCG | LTCL | Type |

Where Type is:

• "Pure ST" = only short-term lots, no LTCG/LTCL created
• "Mixed" = has both LT and ST lots — selling creates both LTCG and STCL
• "Pure LT" = only long-term lots
• "Profit" = overall position is in profit (no loss to harvest)

STEP 4: Show my current tax liability WITHOUT any harvesting

Calculate what I currently owe based on my realized STCG and LTCG:

Apply offset rules in this MANDATORY order (Sections 70-71, Income Tax Act):

1. STCL offsets STCG first (Section 70(2))
2. LTCL offsets LTCG only (Section 70(3)) — LTCL CANNOT offset STCG
3. Surplus STCL offsets LTCG (Section 71)
4. Apply Rs 1,25,000 exemption on remaining LTCG (Section 112A) — applied AFTER loss set-off
5. Tax = (Taxable STCG x 20%) + (Taxable LTCG above 1.25L x 12.5%) + 4% cess on total tax

NOTE: Section 87A rebate does NOT apply to Section 111A/112A income (post Budget 2024).

Show clearly:

• Current taxable STCG: Rs ___
• Current taxable LTCG: Rs ___
• Current total tax liability: Rs ___

STEP 5: Find the MAXIMUM potential tax saving

Run combinations of stocks to find which subset, IF SOLD, would minimize total tax. Show THREE scenarios:

Scenario A: Sell only "Pure ST" stocks (safest — zero hidden LTCG) For each stock to sell, show: | Stock | Qty | STCL Harvested | LTCG Created |

Then show complete offset math:

• New total STCG, STCL, LTCG, LTCL
• Step-by-step offset (Section 70 → 71 → 112A exemption)
• Final tax
• POTENTIAL SAVING vs current liability

Scenario B: Optimal mix (maximum saving while keeping LTCG within 1.25L exemption)

• Include "Mixed" stocks if needed, prioritizing best STCL-to-LTCG ratio
• Ensure net LTCG stays BELOW Rs 1.25L exemption after all offsets
• Same detailed offset math

Scenario C: Sell all loss-making positions (maximum possible harvesting)

• Show full impact including all hidden LTCG from FIFO
• Same detailed offset math

STEP 6: Summary — The Opportunity

Present a clear comparison table:

	No Harvesting	Scenario A	Scenario B	Scenario C
Taxable STCG
Taxable LTCG
Total Tax
Potential Saving	—

For each scenario, list: | Stock | Qty to Sell | STCL | STCG | LTCL | LTCG |

Important rules (hardcoded — do not change):

• FIFO is mandatory — lots cannot be cherry-picked
• Set-off is MANDATORY under Sections 70-71 — losses must offset gains before carry-forward
• India has no wash sale rule — but Sections 94(7) and 94(8) apply for dividend/bonus stripping in mutual funds
• This analysis covers EQUITY-ORIENTED instruments only (listed shares, equity ETFs, equity MFs)
• Gold ETFs, Debt ETFs, International ETFs, and SGBs have DIFFERENT tax rules — exclude them
• SGBs held to maturity = LTCG exempt — flag but do NOT include in harvesting analysis

EXCLUSIONS — flag but do NOT include in analysis:

• ESOP/RSU shares (different cost basis rules)
• IPO allotment shares (cost = issue price)
• Bonus/split shares (need corporate action adjustment)
• Unlisted/delisted securities
• Sovereign Gold Bonds
• Gold/Silver/Debt/International ETFs If any of these appear in my holdings, list them separately with a note.

Output format:

• Use clear tables at every step
• Show ALL math — don't skip intermediate calculations
• At the end, give a one-line summary: "Maximum potential tax saving: Rs ___ (Scenario _)"
• Do NOT recommend buying or selling — just show the opportunity and the math