Tax Harvesting – Legit Trick to Save Taxes

Introduction

You’ve earned profits, but tax season is here — and your gains are getting taxed! That’s where tax harvesting comes in. It’s not a loophole, but a completely legal strategy to minimize capital gains tax while still remaining invested.

In this blog, we break down what tax harvesting is, how it works, and how smart investors are using it — with a real-world example.

What Is Tax Harvesting? 

  Tax harvesting is the process of selling and rebuying mutual fund units to realize gains within tax-exempt limits. The most common type is equity tax harvesting, where you:

• Sell equity mutual fund units that have completed 1 year (LTCG)
• Book gains up to ₹1 lakh per year — which are tax-free
• Immediately reinvest in the same or similar fund to retain market exposure

• Applies only to Long-Term Capital Gains (LTCG) (after 1 year)
• Up to ₹1 lakh of LTCG per financial year is tax-free
• Gains above ₹1 lakh are taxed at 10% (without indexation)

• In March 2025, Anita’s equity mutual fund investment grew from ₹3 lakh to ₹4.2 lakh in 14 months.
• She sold units worth ₹1 lakh gain and reinvested it the same day.
• Result? She locked ₹1 lakh profit tax-free and continued in the same fund.

  When Should You Harvest?

• March (end of financial year) is ideal
• During market rallies, when gains cross ₹1 lakh
• Use Direct Plans or low-exit-load funds for minimal cost impact

 Tax harvesting is a low-effort, high-impact technique for savvy investors. A few clicks can save thousands in taxes — without compromising your long-term wealth creation.

 Talk to your advisor or check your portfolio — you might be sitting on tax-free profits. Don’t let them go untapped!

Summary Table: Tax Harvesting in Equity Funds