What is tax-loss harvesting?
As the financial year draws to a close, your income may be comprised of both realised profits and unrealised losses. If you do not act, you will have to pay taxes on the profits earned, deferring any loss recognition until next year and consequently incurring a higher tax outgo that takes away from any interest on capital.
You can easily postpone the tax payment by booking your unrealised loss, and then re-entering the same trade. This will reduce your tax burden for the year.
In India, there is no clear regulation which outlaws tax loss harvesting. In the US, such a practice is known as a wash sale, and taxes on realised gains cannot be offset in this way. It is therefore suggested that clients trading in India consult with a Chartered Accountant before filing their income tax returns to avoid any questioning from the authorities during tax inspections if the same stocks have been repeatedly bought and sold for tax purposes.
– BTST (ATST) – Is it speculative, non-speculative, or STCG?
BTST (Buy today Sell tomorrow) or ATST (Acquire today sell tomorrow) has rapidly become a popular option amongst equity traders. This type of transaction sees you investing today, and selling the next day without taking delivery of the shares.
Since you are not taking delivery, should it be considered as speculative similar to intraday equity trading?
It’s an issue which has prompted two opposing viewpoints; one classifying it as speculative where there was no actual delivery, while I belong to the second camp who take the stance of it being non-speculative/STCG due to the exchange levying a security transaction tax (STT) on BTST trades in the same way as standard delivery-based transactions. It’s worth noting that when BTST trades are done infrequently, classifying them as STCG would be preferable, but if done frequently then reporting it as speculative business income is best.
– Advance tax – business income
Paying advance tax is crucial if you have a business income. As mentioned in the last chapter, it must be paid annually – 15% by 15th June, 45% by 15th September, 75% by 15th December, and 100% by 15th March – all this being a percentage of your income. So the question that pops up is – what are you basing these percentages off?
When you have a business income, it is likely that you will need to pay most of your taxes before the March 31st deadline. Although profits may be high up until September, one cannot assume the same rate of success to continue until the end of the financial year – it could possibly be either higher or lower.
Paying advance tax is a must, and failure to do so can attract a 12% annualized penalty. The best approach is to make partial payments throughout the year; that way, you have an idea of how much you need to pay by the end of the financial year. Moreover, if you have paid more tax than necessary, you can claim a refund from the Income Tax Department – it’ll be processed quickly.
Also, here is an interesting link that helps you calculate your advance tax – http://www.incometaxindia.gov.in/Pages/tools/advance-tax-calculator.aspx. You can also check this link to see how exactly interest or penalty is calculated for non-payment of advance tax.