Sitting on massive equity profits. How do I use tax loss harvesting and the Rs 1.25L exemption to save tax?

Question

I have been investing in mutual funds for 5yr and have around Rs 8L in long-term capital gains right now.

I haven't sold anything yet.

I heard about harvesting the Rs 1.25L limit and booking losses to save taxes. How exactly does this math work in practice?

Mohan Gupta · Accepted Answer

You can permanently save taxes by booking up to Rs 1.25L of long-term capital gains every single financial year because this amount is entirely tax-free. The catch is that this Rs 1.25L limit cannot be carried forward to the next year. If you don't use it by March 31st, you lose it forever.

Smart investors harvest this exemption by selling just enough of their equity portfolio to realize exactly Rs 1.25L in profits. They then immediately reinvest that same money back into the market. This simple step resets your purchase price to a higher level, effectively wiping out the tax liability on that portion of your growth.

On top of this, if you have any underperforming funds or stocks in your portfolio, you can use tax loss harvesting. This means selling the losers to book a loss, which you can then set off against any profits you booked earlier in the year. If your losses happen to exceed your profits, you can even carry them forward to future years, provided you file your ITR on time.

Combining the yearly Rs 1.25L tax-free window with strategic loss harvesting is the most powerful way to keep your wealth compounding without unnecessary tax drag.

Disclaimer: All information shared above are strictly for educational and informational purposes only. It should not be construed as financial or investment advice.

Sitting on massive equity profits. How do I use tax loss harvesting and the Rs 1.25L exemption to save tax?

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