Tax harvesting in India is a strategy used by investors to reduce their tax liability by selling securities at a loss to offset capital gains. This is particularly useful for individuals investing in stocks, mutual funds, and other capital assets in taxable accounts.
In your portfolio you can have shares which you have purchased for long term, but as on current date they are in loss which you have not booked it. In tax harvesting to reduce your tax liability you book the notional loss and again purchase those shares for long term investment. In this was you can plan your taxes and reduce your tax liability for that particular year.
How Tax Harvesting Works in India?
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Understanding Capital Gains Tax
In India, capital gains are classified as:
Listed Shares
- Short-Term Capital Gains (STCG) – If a listed equity asset is held for less than 12 months, the gains are taxed at 15% (From 23rd July 2024 the tax rate is 20%.)
- Long-Term Capital Gains (LTCG) – If a listed equity asset is held for more than 12 months, the gains exceeding 1 lakh per financial year are taxed at 10% (without indexation benefits). (From 23rd July 2024 the tax rate is 12.5% on above Rs. 1,25,000).
Unlisted Shares
- Short-Term Capital Gains (STCG) – If a unlisted equity asset is held for less than 24 months, the gains are taxed at slab rate. (From 23rd July 2024 the tax rate is slab rate)
- Long-Term Capital Gains (LTCG) – If a listed equity asset is held for more than 24 months, the gains exceeding ₹1 lakh per financial year are taxed at 10% (without indexation benefits) . (From 23rd July 2024 the tax rate is 12.5% on above Rs. 1,25,000).
Immovable Property
- Short-Term Capital Gains (STCG) – If a asset is held for less than 24 months, the gains are taxed at slab rate. (From 23rd July 2024 the tax rate is slab rate (no change))
- Long-Term Capital Gains (LTCG) – If a asset is held for more than 24 months, the gains exceeding ₹1 lakh per financial year are taxed at 20% (with indexation benefits). (From 23rd July 2024 the tax rate is 12.5% o above ₹1.25L ).
Other capital assets (like gold, debt):
- Short-Term Capital Gains (STCG) – If a asset is held for less than 36 months, the gains are taxed at slab rate. (From 23rd July 2024 the tax rate is slab rate (no change).
- Long-Term Capital Gains (LTCG) – If a asset is held for more than 36 months, the gains exceeding ₹1 lakh per financial year are taxed at 20% (with indexation benefits). (From 23rd July 2024, the holding period is 24 only, the tax rate is 12.5% , No change).
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Selling at Loss and then reinvest
Investors can sell stocks, mutual funds, or other assets at a loss to offset taxable capital gains.
- Short-term capital losses (STCL) can be set off against both STCG and LTCG.
- Long-term capital losses (LTCL) can only be set off against LTCG.
If total losses exceed gains, the remaining losses can be carried forward for up to 8 years to offset future capital gains.
How Tax-Loss Harvesting Works
Example 1: Offsetting STCG with STCL
You make ₹1 lakh profit from Stock A (STCG).
You have ₹40,000 loss from Stock B (STCL).
Without tax-loss harvesting: Tax on ₹1 lakh = ₹15,000 (15%).
After harvesting: Taxable gain = ₹60,000, so tax = ₹9,000 (saving ₹6,000).
Example 2: Reducing LTCG Tax Liability
You make ₹2 lakh LTCG from Stock C.
You have ₹1 lakh LTCL from Stock D.
Without tax-loss harvesting: Taxable LTCG = ₹(2L – 1L) = ₹1 lakh (below exemption).
Final tax payable = ₹0 (saving ₹10,000 tax).
Example 3: Carrying Forward Losses
You make ₹3 lakh LTCG from mutual funds.
You have ₹5 lakh LTCL from other investments.
Offset ₹3 lakh LTCG, remaining ₹2 lakh LTCL is carried forward to future years.
Here’s a more structured and effective chart for tax-loss harvesting in India, covering different scenario.
Chart of Tax-Loss Harvesting
| Scenario | Transaction | Gain/Loss | Tax Before Harvesting | Tax After Harvesting | Tax Savings |
| Offset STCG with STCL | Sold Stock A (profit) | ₹1,00,000 (STCG) | ₹15,000 (15%) | ₹9,000 | ₹6,000 |
| Sold Stock B (loss) | ₹40,000 (STCL) | ₹0 | ₹0 | – | |
| Offset LTCG with LTCL | Sold Mutual Fund C (profit) | ₹2,00,000 (LTCG) | ₹10,000 (10% after ₹1L exemption) | ₹0 | ₹10,000 |
| Sold Mutual Fund D (loss) | ₹1,00,000 (LTCL) | ₹0 | ₹0 | – | |
| Carry Forward Losses | Sold Real Estate (profit) | ₹3,00,000 (LTCG) | ₹20,000 (20%) | ₹0 | ₹20,000 |
| Previous LTCL carried forward | ₹3,00,000 | – | – | – |
| Year | LTCG
|
LTCL | Net Taxable Gain | Carried Forward Loss |
| 2024 | ₹3,00,000 | ₹5,00,000 | ₹0 | ₹2,00,000 |
| 2025 | ₹1,50,000 | ₹2,00,000 (Carried Forward) | ₹0 (after offset) | ₹50,000 |
| 2026 | ₹80,000 | ₹50,000 (Carried Forward) | ₹30,000 taxable | ₹0 |
How to find tax harvesting opportunity?
Step 1: Review portfolio for stocks/mutual funds with unrealized losses.
Step 2: Identify taxable capital gains (STCG & LTCG).
Step 3: Sell underperforming assets to book losses and offset tax liability.
Step 4: Ensure losses are matched properly (STCL → STCG/LTCG, LTCL → LTCG only).
Step 5: Carry forward unused losses for future tax benefits (up to 8 years).
Best Time to Find Tax Harvesting Opportunities
December (Mid-Year Review): Identify underperforming stocks & plan ahead.
March (End of Financial Year): Finalize tax harvesting decisions before the year-end deadline.
What is tax harvesting last date?
Tax harvesting should be done by end of financial year i.e by 31st March every year.
Conclusion
Tax-loss harvesting is a smart way to minimize tax liability while managing your investments efficiently. By understanding how to offset gains, utilize exemptions, and carry forward losses, you can save taxes and optimize your investment returns.