Tax Harvesting
Tax & DeductionsTax harvesting means deliberately booking up to Rs 1.25 lakh of equity LTCG annually (the tax-free exemption) and immediately reinvesting. This resets your cost basis, reducing future taxable gains. Free tax saving with no investment change.
In detail
Do this every January-February. Sell equity fund units with gains up to Rs 1.25L. Immediately reinvest same amount. New cost basis is now Rs 1.25L higher. When you eventually sell permanently, taxable gain is smaller by Rs 1.25L each year you harvested. Annual tax saved: Rs 1.25L x 12.5% = Rs 15,625.
Formula
Annual tax saved = Rs 1.25L x 12.5% = Rs 15,625
Real-life example
🇮🇳 India example
Kavita's equity fund gain from last reset: Rs 1.6L. She redeems enough to book Rs 1.25L gain (zero tax). Reinvests immediately. New cost basis up by Rs 1.25L. Future tax reduced by Rs 15,625 per harvest.
Frequently asked questions
Does tax harvesting work for debt funds? ▼
No specific threshold for debt funds. Debt gains taxed at slab rate regardless. Tax harvesting primarily benefits equity and equity hybrid investors.