Tax Harvesting

Tax harvesting is the practice of selling investments at a strategic time to manage your capital gains tax bill, either by realizing gains within an exemption threshold or by booking losses to offset gains elsewhere. It's a timing strategy, not a way to avoid tax on income you'd owe anyway.

The most common version in India is long-term capital gains harvesting, selling equity investments that have crossed the one-year mark to use up the annual ₹1.25 lakh exemption on long-term gains, then reinvesting the proceeds. The Capital Gains Tax Calculator shows how much of your gain falls within or above that threshold.

Loss harvesting works the opposite way: selling a losing position to realize a capital loss that offsets a gain elsewhere in the same tax year, reducing what you owe overall.

Tax Saved (Gain Harvesting) = min(Unrealized LTCG, Annual Exemption Limit) × Applicable LTCG Rate

Anjali holds equity mutual funds with ₹2,00,000 in unrealized long-term gains. She sells units worth ₹1,25,000 of gains at year-end, staying within the exemption limit, and reinvests the proceeds immediately.

• Gain realized within exemption: ₹1,25,000
• Tax on this portion: ₹0 (within the annual LTCG exemption)
• Remaining ₹75,000 of gains stays unrealized, to be harvested in future years

Without harvesting, if she'd sold the full ₹2,00,000 gain in one year, ₹75,000 would have been taxed at 12.5%, a difference of roughly ₹9,375.

• Reinvest promptly to maintain market exposure. The point isn't to exit the market, it's to reset your cost basis while staying invested.
• Check for wash sale-style rules in your jurisdiction. Some countries disallow a loss claim if you rebuy the same security too quickly after selling.
• Works best as an annual habit, not a one-time move. Harvesting a little every year within the exemption threshold compounds into meaningful tax savings over a long holding period.
• Loss harvesting can offset gains from unrelated investments. A loss in one stock can reduce the tax owed on a gain in a completely different fund, within the same tax year.
• Transaction costs eat into the benefit. Brokerage and exit loads on frequent selling and rebuying can offset some of the tax saved, so weigh the cost against the benefit for smaller portfolios.