Is tax-loss harvesting (TLH) legal in India?

Yes. India has no explicit ‘wash-sale’ statute like the U.S., but GAAR/anti-abuse principles apply. Keep commercial substance: switch to a similar (not identical) exposure, document intent, and avoid round-tripping purely for tax.

What are the set-off rules for capital losses?

Short-term capital loss (STCL) can be set off against STCG and LTCG. Long-term capital loss (LTCL) can be set off only against LTCG. Unabsorbed losses can be carried forward for eight assessment years subject to return filing conditions.

How does the ₹1 lakh LTCG exemption work for equity?

For listed equity/equity mutual funds, LTCG above ₹1 lakh in a financial year is taxed at 10% (plus cess). By realizing up to ₹1 lakh of LTCG annually and rebasing cost, you can step up your cost basis while paying zero tax on that chunk.

Can I sell and buy back the same mutual fund for harvesting?

Technically yes, but better practice is switching to a highly correlated alternative (different ISIN/fund mandate) to avoid appearance of a round-trip solely for tax. Mind exit loads, cut-off times, and that the holding period clock resets.

Do I need to pay advance tax on harvested gains?

If total estimated tax after TDS is ≥ ₹10,000 in the financial year, pay advance tax by quarterly due dates to avoid 234B/234C interest, even if you plan to set off losses later.

Tax Planning • FY 2024-25

Capital Gains Harvesting (India)

Pros don’t “sell low”—they bank a tax asset while staying invested. The craft is switching exposure cleanly, timing entries, and using the ₹1 lakh equity LTCG window without breaking your asset allocation.

What Is Capital Gains Harvesting?

Two playbooks matter in India:

Tax‑Loss Harvesting (TLH): Realize losses to set off current/future gains without derailing market exposure.
Tax‑Gain Harvesting (TGH): Realize up to ₹1,00,000 of equity LTCG annually at 0% and step up your cost basis.

Do it right and you reduce lifetime taxes; do it wrong and you trigger avoidable tax, exit loads, or compliance risks.

Rules at a Glance (FY 2024‑25)

Equity/equity MF: STCG (≤12 months) 15%; LTCG (>12 months) 10% on gains above ₹1L; STT paid required for concessional rates.
Debt/Gold/International funds (post‑Apr 1, 2023 for new units): Typically taxed at slab rates regardless of holding period; legacy units may differ.
Set‑off: STCL offsets STCG/LTCG; LTCL offsets only LTCG. Carry forward up to 8 years if ITR filed on time.
Advance tax: If tax after TDS ≥ ₹10,000, pay quarterly to avoid interest.

Tax‑Loss Harvesting: The Practitioner’s Playbook

Scan for candidates: List positions with unrealized losses. Prioritize funds/stocks you still want exposure to.
Switch, don’t sit out: Sell the loss‑making security and immediately buy a highly correlated alternative (different ISIN/fund mandate) to keep market beta while creating a loss for set‑off.
Document substance: Save contract notes and your rationale (rebalancing, mandate upgrade). TLH is stronger when accompanied by portfolio hygiene, not done in isolation.
Mind frictions: Exit loads, STT, brokerage, and cut‑off times for mutual funds (T+2 units, category exposure drift).

Caveat ("Wash‑Sale" in India)

India has no explicit wash‑sale rule, but anti‑abuse (GAAR) exists. Avoid round‑tripping into the exact same instrument solely for tax. Prefer a close proxy for 30–45 days or rebalance into your strategic alternative. Keep evidence of commercial purpose.

Tax‑Gain Harvesting: Use Your ₹1 Lakh Equity LTCG Window

Each financial year, you can realize up to ₹1,00,000 of equity LTCG at 0% tax and reset your cost basis. This reduces future taxable gains.

Harvest in tranches to stay below the limit after netting losses/gains.
Sell and buy back the same exposure if needed—be mindful of exit loads, cut‑offs, and that your holding period clock resets.
Track cumulative realized LTCG year‑to‑date across brokers/folios.

Worked Examples (Directionally)

Example A: TLH to Offset STCG

You have ₹50,000 short‑term loss in Fund X and ₹50,000 short‑term gain in Stock Y. You TLH Fund X and switch to a correlated Fund Z.

Set‑off: STCL offsets STCG fully.
Tax saved: 15% of ₹50,000 = ₹7,500 (+4% cess).
Exposure maintained via Fund Z; document the switch.

Example B: TGH with ₹1L LTCG Window

Equity MF has ₹1.2L LTCG. You harvest ₹1L now and rebuy; remaining ₹20k taxed at 10% = ₹2,000 (+cess). Cost basis steps up for future.

Ensure STT eligibility and >12‑month holding period.
Watch exit load; harvest in smaller lots if needed.

Timing, Compliance, and Record‑Keeping

Calendar: Review in Jan–Feb; execute by March with buffer for T+1/T+2 settlements and market holidays.
Evidence: Keep contract notes, redemption confirmations, and folio statements. Mark which trades were rebalancing vs TLH/TGH.
Advance tax: If net tax due ≥ ₹10,000, pay by due dates.
Set‑off hygiene: Track STCL vs LTCL buckets; preserve carry‑forward in ITR.

Common Mistakes We See

Harvesting into cash and missing a rebound; switch to a proxy instead.
Ignoring exit loads and cut‑off times in mutual funds; plan the switch date.
Assuming new debt fund units get indexation—post‑Apr 1, 2023 many don’t.
Repurchasing identical exposure same day with no documented purpose—avoid the optics.
Forgetting to include harvested gains in advance tax estimates.

Quick Checklist (Actionable)

Export YTD realized/unrealized P&L from all brokers and folios.
Identify TLH pairs (sell A, buy B proxy) and TGH lots.
Check exit loads, STT, and cut‑offs; schedule trades.
Update advance tax projection if net tax ≥ ₹10,000.
File ITR on time to preserve loss carry‑forward.

Capital Gains Harvesting (India)

What Is Capital Gains Harvesting?

Rules at a Glance (FY 2024‑25)

Tax‑Loss Harvesting: The Practitioner’s Playbook

Tax‑Gain Harvesting: Use Your ₹1 Lakh Equity LTCG Window

Worked Examples (Directionally)

Example A: TLH to Offset STCG

Example B: TGH with ₹1L LTCG Window

Timing, Compliance, and Record‑Keeping

Common Mistakes We See

Quick Checklist (Actionable)

Tools & Read Next

Capital Gains Calculator

FY 2024‑25 Income Tax Slabs

Mutual Fund Calculator

Rates Dashboard