Plan your investment according to tax position

With the returns from stocks declining rapidly, an investor needs to have a clear idea about how he is going to tackle the overall tax position. Arnav Pandya reports.

An investor needs to properly plan his capital gains position to keep tax liabilities low. With the returns from stocks declining rapidly, an investor needs to have a clear idea about how he is going to tackle the overall tax position.

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Short-term dealings
The opportunities in the market that yield returns in less than a year are classified as short-term gains. The current tax rate on this gain is 15 per cent, which is not a very high.

Looking at this figure, a person should decide on going in for either short-term gains or long-term according to his need. There is also a possibility that the gain from investment may not be sustainable over a longer period. While deciding on this, he has to also keep in mind the tax liability.

Offset short-term loss with gain
If a certain investment is not likely to rise much in coming months, and there is a loss on these holdings, then it makes sense to book short-term loss. The other option is to hold them for more than a year and then have a loss. Since a long-term loss has no value for the investor they would be better off booking the same within a year and use it as a set off against any short-term capital gain they would have earned during the year.

Look for better options
If there is a belief that things will get better then there is no need to book short-term gains. On the other hand, if the outlook for existing holdings looks bleak then it might make good sense to book losses and limit this figure in the long-term. The money received can then be used to make investment that yields good returns and ensures that some benefit comes to the investor.