Tax Loss Harvesting — Reduce Capital Gains Tax
Tax loss harvesting involves strategically selling investments at a loss to offset capital gains, thereby reducing your tax liability. It's a legal and smart tax-saving strategy.
How It Works
You have ₹2L LTCG from equity (tax on ₹75K above ₹1.25L exemption). You also hold a stock with ₹1L unrealized loss. Sell the losing stock → book ₹1L loss → net LTCG becomes ₹1L (below exemption) → zero tax!
Rules in India
Short-term losses can offset both short-term and long-term gains. Long-term losses can only offset long-term gains. Unabsorbed losses can be carried forward for 8 years. Must file ITR before due date to carry forward.
Annual LTCG Harvesting
Even without losses, harvest ₹1.25L LTCG every year tax-free. Sell equity worth ₹1.25L profit → immediately reinvest. This resets your purchase price higher, reducing future tax. Free money!