Tax-Loss Harvesting and LTCG Harvesting: Save Lakhs Legally

Selling and rebuying equity to stay within the ₹1.25 lakh LTCG exemption every year. The strategy, the rules, and the math.

1.LTCG harvesting: the ₹1.25 lakh annual reset

Every year, you can realize up to ₹1.25 lakh in long-term equity gains tax-free. Strategy: sell mutual fund units with LTCG = ₹1.25 lakh, then immediately buy them back. Your cost basis resets to the higher price. Over 10 years, harvesting ₹1.25 lakh/year = ₹12.5 lakh in tax-free gains. Tax saved: ₹12.5 lakh × 12.5% = **₹1.56 lakh**. This is completely legal and recommended by most financial planners.

2.How to execute: step by step

Step 1: In January-March, check unrealized LTCG across your equity portfolio. Step 2: Identify funds/stocks where LTCG is ₹1.25 lakh or close. Step 3: Sell those units. Step 4: Wait 1 business day (to avoid same-day settlement issues — though technically instant rebuy is fine for different fund houses). Step 5: Buy the same fund (or a similar one). Your new cost is the current NAV, resetting your future gains calculation.

3.Tax-loss harvesting: offsetting gains with losses

If you have short-term gains of ₹2 lakh and also hold stocks/funds with unrealized short-term losses of ₹1.5 lakh: sell the losing positions to book the loss. Net taxable STCG: ₹50,000. Tax saved: ₹1.5 lakh × 20% = **₹30,000**. Rebuy the same or similar asset after 30 days (to avoid the "wash sale" scrutiny, though India doesn't have formal wash sale rules yet). Short-term losses can offset both short-term and long-term gains.

4.Key takeaway

LTCG harvesting is a free ₹15,600+ saved every year with 5 minutes of work. Tax-loss harvesting can save thousands more in volatile years. Do this every March as part of your year-end financial review. Use our capital gains calculator to track your unrealized gains and plan harvesting amounts.