LTCG Tax Harvesting
Tax & DeductionsLTCG tax harvesting is the strategy of selling equity mutual fund units each financial year to book up to Rs 1.25 lakh of long-term capital gains tax-free (annual LTCG exemption), then immediately reinvesting. This resets your cost basis and eliminates future tax on today's gains.
In detail
How to do LTCG harvesting:n1. In February or March, check your equity mutual fund gainsn2. Calculate how much can be sold to keep gains within Rs 1.25L (tax-free)n3. Sell those units (must be held 12+ months to qualify as LTCG)n4. On the same day or next day: reinvest the same amount in the same fundn5. New units have a higher cost basis, reducing future LTCGnnFrequency: once per financial year. Do not mix with STCG (held less than 12 months) -- those are taxed at 20%.nnBenefit: over 10-15 years, annual harvesting can save Rs 5-15L in future taxes compared to no harvesting.
Formula
Real-life example
Rohit has Rs 10L in ELSS and index funds (held 3+ years). March 2025: unrealised LTCG = Rs 4L. He sells Rs 3.5L worth of units (booking Rs 1.25L LTCG, just within exemption). Zero tax. Immediately reinvests Rs 3.5L in the same fund at new (higher) NAV. Next year, his cost basis is reset. Over 15 years of annual harvesting: saves Rs 2-3L in taxes versus the hold-and-pay approach.