Tax Harvesting

Tax Harvesting in India

Maximise Capital Gains Savings (2025)

1. What Is Tax Harvesting?

Tax harvesting, also known as capital gains harvesting, is a strategy that involves selling investments to realise gains or losses within the financial year to minimise tax liability. In the Indian context, this includes:

  • Booking tax-free LTCG gains up to ₹1.25 lakh
  • Offsetting taxable gains by using capital losses (carry‑forwardable up to 8 years)

2. Updated Tax Landscape (FY 2024–25 / FY 2025–26)

Asset TypeHolding PeriodTax RateExemption Limit
Listed Equity/ETFs/MFs> 12 months12.5% (LTCG); 20% (STCG)₹1.25 lakh LTCG
Other Financial Assets> 24 months12.5% (uniform LTCG)n/a
  • The LTCG tax raised from 10% to 12.5%, with no indexation 
  • Exemption limit increased from ₹1 lakh to ₹1.25 lakh 
  • STCG on equity now at 20%

3. How to Execute Tax Harvesting

Step-by-Step Process
  • Track your unrealised gains/losses – monitor holdings held over 12 months.
  • Sell gains up to ₹1.25 lakh tax-free before 31 March to reset the cost base 
  • Sell loss-making assets to offset taxable STCG and LTCG (above ₹1.25 lakh).
  • Reinvest proceeds wisely, preferably in similar assets (not identical) to maintain exposure and comply with carryover rules.
  • Report correctly in ITR—now possible via updated forms like ITR‑1/ITR‑4 for equity gains ≤₹1.25 lakh 

4. Real-World Examples

📌 Example – Tax-Free Gain Reset
  • Equity holding grew from ₹2 lakh to ₹3.2 lakh → ₹1.2 lakh LTCG
  • Sell the entire holding → ₹1.2 lakh is exempt
  • Reinvest ₹3.2 lakh → New higher cost base, setting up future gains from ₹3.2 lakh
📌 Example – Loss Offset Strategy
  • ₹15 lakh STCG – ₹5 lakh capital loss = ₹10 lakh taxable → save ₹1 lakh in tax (at 20%)
  • Losses carry forward up to 8 years for future offsets

5. Why It’s Worth Doing

  • Annual exemption renewal: ₹1.25 lakh LTCG expires after 31 March if unused 
  • Boost overall returns – Value Research showed ₹20 lakh growing at 12% annually with harvesting results in ₹1.41 lakh higher corpus after 10 years
  • Clean up underperforming assets, improve portfolio health and drive tax efficiency

6. Actionable Tips & Best Practices

  • Check eligibility early in March, before the market closes
  • Iterative rebalancing: Don’t just harvest once—consider frequent reviewing
  • Watch costs: Keep an eye on brokerage, STT, and exit loads—though costs are generally low 
  • Reinvestment nuance: Prefer similar funds/ETFs—not identical securities—to maintain exposure
  • Report losses online: File ITR‑2 if your losses/gains exceed form‑1 limits or intend to carry forward losses 

7. Common Pitfalls to Avoid

  • Missing the 31 March deadline – Gains/losses outside FY are taxable in next FY
  • Market timing trap – Avoid harvesting in a dip if recovery is expected soon 
  • Ignoring ITR nuances – Don’t omit reporting losses; otherwise you lose carry‑forward

8. Conclusion – Harvest for Growth, Not Just Gains

Tax harvesting is a powerful, legal way to boost post-tax returns while maintaining investment strategy. With annual LTCG exemption of ₹1.25 lakh, 12.5% LTCG rate, and updated ITR forms, the current fiscal year offers an optimal window. Tax harvest before March-end, reset cost bases, offset losses, and reinvest wisely to compound your gains.

📆 Investment Calendar for Tax Harvesting (FY 2025–26)

April – June 2025
  • April 1: New financial year begins — your previous cost bases are now set.
  • By June 15: If you earned significant capital gains or other income, pay the 1st advance tax instalment
  • Ongoing: Monitor unrealised short-term capital gains (STCG) (booked <12 months) and long-term capital gains (LTCG) (>12 months). Short-term losses can be set off against both STCG and LTCG, while long-term losses only offset LTCG
July – September 2025
  • July 31: Deadline to file ITR for the previous year. To carry forward losses, ensure your ITR is filed by this date
  • September 15: 2nd advance tax instalment due (45% of estimated tax liability)
  • Mid-September: Portfolio review—identify any deepening losses; preparing for harvesting at year-end.
October – December 2025
  • December 15: The 3rd advance tax instalment (75% of the total) must be paid
January – February 2026
  • January: Use this month to identify potential loss-harvesting candidates and plan trades.
  • February: Attend to budget announcements—for any mid-year tweaks to LTCG/STCG provisions
March 2026 – Final Push
  • By March 15: Pay 4th and final advance tax instalment
  • By March 28–31:
    • Harvest gains up to ₹1.25 lakh LTCG — ideally sell on March 31, but if markets are closed, sell on March 28 to ensure booking in FY 2025–26
    • Harvest losses (STCL & LTCL) to offset gains, lowering or negating tax liability.
    • Reinvest proceeds on April 1 (or early April) to maintain market exposure and reset cost basis
Final Checklist Before March 31
  • List realized LTCG; ensure total ≤₹1.25 lakh
  • Sell loss-making holdings if needed to offset STCG/LTCG
  • Reinvest in similar assets for future growth
  • Report accurately in your ITR

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