The Simple Formula for Tax Savings
Calculating how much tax you save from loss harvesting is straightforward. The formula depends on the type of loss and the type of gain it offsets:
STCL offsetting STCG: Tax saved = Loss amount x 20% x 1.04 (cess) = Loss x 20.8% STCL offsetting LTCG: Tax saved = Loss amount x 12.5% x 1.04 (cess) = Loss x 13% LTCL offsetting LTCG: Tax saved = Loss amount x 12.5% x 1.04 (cess) = Loss x 13% LTCL offsetting STCG: Tax saved = Rs 0 (not allowed)
The highest savings rate is STCL against STCG at 20.8% (including cess). For every lakh of STCL, you save Rs 20,800. This is why short-term loss harvesting is the most efficient form of the strategy.
The 4% health and education cess is applied on top of the base tax rate. While the cess amount is small, it adds up on larger harvests. On Rs 5,00,000 of STCL, the cess component alone is Rs 4,000.
Remember that these savings assume you have sufficient gains to absorb the loss. If your loss exceeds your gains, the excess is carried forward and the saving is deferred to a future year.
Tax Savings Table: STCL Offsetting STCG at 20%
| STCL Amount | Tax Saved (20%) | Cess (4%) | Total Saved |
|---|---|---|---|
| Rs 25,000 | Rs 5,000 | Rs 200 | Rs 5,200 |
| Rs 50,000 | Rs 10,000 | Rs 400 | Rs 10,400 |
| Rs 75,000 | Rs 15,000 | Rs 600 | Rs 15,600 |
| Rs 1,00,000 | Rs 20,000 | Rs 800 | Rs 20,800 |
| Rs 1,50,000 | Rs 30,000 | Rs 1,200 | Rs 31,200 |
| Rs 2,00,000 | Rs 40,000 | Rs 1,600 | Rs 41,600 |
| Rs 3,00,000 | Rs 60,000 | Rs 2,400 | Rs 62,400 |
| Rs 5,00,000 | Rs 1,00,000 | Rs 4,000 | Rs 1,04,000 |
| Rs 7,50,000 | Rs 1,50,000 | Rs 6,000 | Rs 1,56,000 |
| Rs 10,00,000 | Rs 2,00,000 | Rs 8,000 | Rs 2,08,000 |
Tax Savings Table: LTCL or STCL Offsetting LTCG at 12.5%
| Loss Amount | Tax Saved (12.5%) | Cess (4%) | Total Saved |
|---|---|---|---|
| Rs 25,000 | Rs 3,125 | Rs 125 | Rs 3,250 |
| Rs 50,000 | Rs 6,250 | Rs 250 | Rs 6,500 |
| Rs 75,000 | Rs 9,375 | Rs 375 | Rs 9,750 |
| Rs 1,00,000 | Rs 12,500 | Rs 500 | Rs 13,000 |
| Rs 1,50,000 | Rs 18,750 | Rs 750 | Rs 19,500 |
| Rs 2,00,000 | Rs 25,000 | Rs 1,000 | Rs 26,000 |
| Rs 3,00,000 | Rs 37,500 | Rs 1,500 | Rs 39,000 |
| Rs 5,00,000 | Rs 62,500 | Rs 2,500 | Rs 65,000 |
| Rs 7,50,000 | Rs 93,750 | Rs 3,750 | Rs 97,500 |
| Rs 10,00,000 | Rs 1,25,000 | Rs 5,000 | Rs 1,30,000 |
The LTCG Exemption Effect on Savings
When STCL or LTCL offsets LTCG, you need to account for the Rs 1,25,000 annual exemption. The exemption is applied after losses are set off. This means:
If your LTCG before loss offset is below Rs 1,25,000, the loss offset reduces an already tax-free amount. The tax saving is zero in this case.
If your LTCG before loss offset is above Rs 1,25,000, the loss first reduces the taxable portion. The saving depends on how much LTCG exceeds the exemption.
Example 1: LTCG is Rs 2,00,000. LTCL is Rs 50,000. After offset, LTCG is Rs 1,50,000. Exemption covers Rs 1,25,000. Taxable: Rs 25,000. Tax: Rs 3,250. Without the LTCL, taxable would be Rs 75,000, tax Rs 9,750. Saving: Rs 6,500.
Example 2: LTCG is Rs 1,40,000. LTCL is Rs 50,000. After offset, LTCG is Rs 90,000. Exemption covers Rs 1,25,000. Taxable: Rs 0. Without the LTCL, taxable would be Rs 15,000, tax Rs 1,950. Saving: Rs 1,950.
Example 3: LTCG is Rs 1,00,000. LTCL is Rs 50,000. After offset, LTCG is Rs 50,000. Exemption covers all. Taxable: Rs 0. But without the LTCL, LTCG was Rs 1,00,000, still below exemption. Saving: Rs 0.
In Example 3, the harvest was pointless since the LTCG was already exempt. Always check if your LTCG exceeds Rs 1,25,000 before harvesting losses against it.
Real-World Saving Scenarios
Let us look at realistic scenarios for different investor profiles:
Casual investor: Sold 2-3 stocks during the year, STCG of Rs 60,000. Has one stock down Rs 40,000 (short-term). Harvests the STCL. Tax saved: Rs 40,000 x 20.8% = Rs 8,320. Net of transaction costs (approximately Rs 300): Rs 8,020.
Active investor: Regular trading generates STCG of Rs 3,50,000 and LTCG of Rs 2,00,000 over the year. Identifies Rs 1,50,000 in harvestable STCL across 4 stocks. After harvest: STCG drops to Rs 2,00,000. Remaining Rs 0 STCL rolls to LTCG. Tax saved on STCG: Rs 1,50,000 x 20.8% = Rs 31,200. Transaction costs: approximately Rs 1,200 for 4 sell-and-rebuy transactions. Net saving: Rs 30,000.
High-net-worth investor: Portfolio generates Rs 8,00,000 in STCG and Rs 5,00,000 in LTCG. Identifies Rs 4,00,000 in STCL and Rs 1,50,000 in LTCL. After harvest: STCG drops to Rs 4,00,000. No excess STCL for LTCG. LTCL reduces LTCG to Rs 3,50,000. Tax saved: STCL saves Rs 83,200. LTCL saves Rs 19,500 on LTCG (Rs 1,50,000 x 13%). Total: Rs 1,02,700.
These scenarios show that tax savings from loss harvesting scale with portfolio size and trading activity. Even casual investors can save meaningful amounts.
Factors That Reduce Your Actual Savings
The tables above show gross tax savings. Your actual savings will be reduced by several factors:
Transaction costs: Brokerage (Rs 20 per order for discount brokers), STT (0.1% on sell side delivery, 0.025% on buy side delivery for stocks), GST (18% on brokerage), stamp duty, and SEBI charges. For a Rs 1,00,000 sell-and-rebuy, total costs are approximately Rs 300 to Rs 500.
Price slippage: If you sell and rebuy, the stock price may move between the two trades. This is typically 0.05% to 0.5% depending on stock liquidity and market conditions.
Exit load (mutual funds only): 1% on redemptions within 12 months for most equity funds. On Rs 1,00,000, this is Rs 1,000.
Cost basis reset: After rebuying at a lower price, your future gains will be higher by the same amount as the loss you booked. This is a tax deferral, not a permanent saving. However, the time value of money makes the deferral beneficial: Rs 20,000 saved today is worth more than Rs 20,000 in additional tax 5 years from now.
To calculate your true net savings: start with the gross tax saving from the tables, subtract transaction costs (both sell and rebuy), subtract any exit load, and subtract estimated slippage. If the result is positive, the harvest is worthwhile.
Use TaxHarvestLab to Calculate Your Exact Savings
While the tables and formulas above give you a good estimate, calculating your exact savings requires detailed data about your specific portfolio, realized gains, lot-level cost bases, and holding periods.
TaxHarvestLab automates this calculation. Here is what it does:
- Imports your holdings and trade history from Zerodha or other brokers
- Calculates your realized STCG, LTCG, STCL, and LTCL for the current financial year
- Identifies every unrealized loss in your portfolio with FIFO-accurate cost basis
- Applies the set-off rules in the correct order
- Accounts for the Rs 1,25,000 LTCG exemption
- Shows you the exact tax saving for each potential harvest
- Ranks harvesting opportunities by net tax saving (after estimated transaction costs)
- Provides the optimal harvesting plan that maximizes your total tax savings
The output is a clear recommendation: sell these specific stocks, in these quantities, to save this exact amount of tax. No manual calculations, no risk of FIFO errors, no guesswork about the set-off order.
For investors who want to verify the logic, every calculation step is transparent and can be traced back to the underlying lot data. This ensures you understand exactly why each recommendation is made and can make an informed decision before executing.
See how this applies to your portfolio
Upload your Zerodha or Groww reports and get personalized recommendations in under 2 minutes.
Analyze My Portfolio FreeFrequently Asked Questions
How much tax does Rs 1 lakh of STCL save?
Rs 1,00,000 of STCL offsetting STCG saves Rs 20,800 (20% tax plus 4% cess). If it offsets LTCG instead, the saving is Rs 13,000 (12.5% plus cess).
Is loss harvesting a permanent tax saving or just a deferral?
It is partly both. The set-off against current gains is a permanent saving. But the cost basis reset on rebuying means future gains will be higher by the loss amount. The time value of money makes the net effect positive.
Should I harvest losses even if the tax saving is small?
If the net saving after transaction costs is positive and the effort is minimal, yes. But for very small losses (under Rs 10,000), the saving of Rs 2,000 or less may not justify the effort, especially if it creates a carry-forward.