Tax harvesting before 31 March: the ₹1.25 lakh exemption and your losses

Why 31 March matters

Capital gains are counted by the tax year, which runs from 1 April to 31 March. Under the Income-tax Act, 2025, in force from 1 Apr 2026, the year is called the tax year; the rates for listed equity did not change. Each year brings a fresh ₹1.25 lakh long term exemption, and each year's gains and losses are netted together. Once 31 March passes, what you booked is fixed for that year.

That makes the last weeks of the year the time to look at what you have already booked and what is still sitting in your portfolio. The rates are the ones in force since 23 Jul 2024: 20% on gains held 12 months or less, 12.5% on longer gains above ₹1.25 lakh. The mutual fund vs direct stocks tax guide covers why they apply equally to shares and equity funds.

Move 1: harvest your long term gains

Suppose you bought index fund units three years ago for ₹4,00,000 and they are worth ₹5,20,000. The ₹1,20,000 gain is long term. If you never sell, you will one day pay 12.5% on it, beyond whatever exemption is left that year. If you sell now and buy back straight away, the ₹1,20,000 sits inside this year's ₹1.25 lakh exemption: no tax today, and your new cost is ₹5,20,000. The future tax on that ₹1,20,000 is gone.

Do it every year and you reset the cost of your oldest holdings by up to ₹1.25 lakh of gain a year. Over ten years that is up to ₹12.5 lakh of gains moved out of the taxable pile, worth up to ₹1,56,250 of tax at today's rate. The blog note the Rs 1.25 lakh you throw away every year works the same idea forward.

Three rules for doing it well:

• Use only long term lots. A lot held 12 months or less creates a short term gain taxed at 20%, which the exemption does not cover.
• Count gains you have already booked. The ₹1.25 lakh is one allowance for the year. If rebalancing or a sale already used ₹80,000 of it, only ₹45,000 is left.
• Mind exit loads and the fund's lock in. Most equity funds have no exit load after a year, but check. ELSS units are locked for three years and cannot be sold before.

Move 2: harvest your losses

Losses are worth something only if you book them. A share bought for ₹1,00,000 and now worth ₹70,000 has a ₹30,000 loss on paper. Sold before 31 March, that loss can cut the tax on gains you have booked this year.

The set off rules decide where a loss can go:

Order matters. If you have a short term gain taxed at 20% and a long term gain inside the exemption, a short term loss used against the short term gain saves 20% of it. The tax loss harvesting module covers the finer points for rules based portfolios, and the tax loss harvesting calculator runs your own numbers.

A worked example: one investor's March

By early March an investor has booked ₹60,000 of short term gains from rebalancing and ₹50,000 of long term gains from a fund sale. In the portfolio she holds a stock bought nine months ago with a ₹40,000 loss, and fund units held four years with ₹1,10,000 of unbooked long term gain.

1. Book the ₹40,000 short term loss. It offsets ₹40,000 of the short term gain. Tax on short term gains falls from ₹12,000 (20% of ₹60,000) to ₹4,000, a saving of ₹8,000.
2. Harvest ₹75,000 of long term gain. She has used ₹50,000 of the ₹1.25 lakh, so ₹75,000 is left. She sells enough fund units to book ₹75,000 of gain and buys back. No tax now; future tax saved about ₹9,375.
3. Keep the remaining ₹35,000 of unbooked gain for next year's exemption.

Total value of an hour's work: about ₹17,000, before costs. If she wants to keep holding the stock, she can buy it back; India has no specific wash sale rule for listed shares, but a sale and buy back done only to manufacture a loss can be questioned, so ask a tax adviser how your case looks.

Timing: settle before 31 March

Indian shares settle on T+1: a sale on Monday settles on Tuesday. Mutual fund redemptions take a day or more to process. Holidays near the year end move the last trading day. The safe rule is to finish harvesting at least a few trading days before 31 March, and to keep the contract notes. Gains and losses then show in your Annual Information Statement, which the AIS, TIS and ITR module explains how to reconcile.

Your year end harvest, step by step

1. Download your capital gains reportfrom your broker and your fund statement, for the year so far.
2. Total what you have bookedshort term gains, long term gains, and any losses, plus losses carried from earlier years.
3. List lots with lossesshort term losses first, then long term.
4. Book losses against gainsshort term losses against short term gains first, where the rate is 20%.
5. Fill the ₹1.25 lakhsell and buy back long term lots until booked long term gains reach the exemption.
6. Check the costsSTT, brokerage, DP charges and exit loads must be well below the tax saved.
7. Finish early and file on timea few trading days before 31 March, and file the return by the due date so losses carry forward.

Common mistakes at the year end

1. Harvesting short term lots. A lot held 12 months or less is taxed at 20% the moment you sell. Check the purchase date of each lot, not of the holding as a whole.
2. Forgetting earlier booked gains. A fund switch or a rebalance in October counts against this year's ₹1.25 lakh. Start from the capital gains report, not from memory.
3. Selling a fund within its exit load period. A 1% exit load on ₹5 lakh is ₹5,000, a third of the most that harvesting can save.
4. Filing late. A loss carries forward only if the return for that year is filed by its due date. A late return loses the carry forward.
5. Letting the tax tail wag the dog. Selling a holding you would not otherwise sell, only for a small tax saving, changes your portfolio. Harvest within your plan.

How this shows up in RupeeCase

A rules based portfolio harvests some of this on its own, because each rebalance sells names the rule has dropped, winners and losers alike, and books both in your demat. That is also why fast rules create mostly short term gains. RupeeCase publishes every rebalance list, so you can see which sales happened when, and your broker's tax report shows the gains and losses lot by lot. TotalMarket Hybrid holds about 80% in 50 momentum stocks and 20% in debt, rebalanced every 2 weeks, with a model CAGR of 39.53% and a deepest fall of −21.82%, as of 27 Apr 2026. Long term holdings you keep outside a strategy, such as index funds, are where yearly gains harvesting does the most.

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