What is Tax Loss Harvesting?
Tax loss harvesting is a legal strategy to reduce your capital gains tax by:
- Selling mutual funds that are currently at a loss
- Using those losses to offset your capital gains
- Rebuying the same (or similar) funds after 30 days
💰 How Much Can You Save?
Long-term capital gains (LTCG) on equity mutual funds above ₹1 lakh are taxed at 12.5% (Budget 2024).
If you have:
- ₹1,50,000 in gains → ₹50,000 taxable → Tax: ₹6,250
- ₹50,000 harvestable losses → Taxable gains: ₹0 → Tax: ₹0
- Tax saved: ₹6,250!
Maximum savings with ₹1L losses = ₹12,500 per year
Tax Loss Harvesting Rules in India (2026)
For Equity Mutual Funds:
| Holding Period |
Tax Rate |
Exemption |
| Less than 1 year (STCG) |
20% |
None |
| More than 1 year (LTCG) |
12.5% |
First ₹1,00,000 exempt |
For Debt Mutual Funds (Post April 2023):
| Type |
Tax Treatment |
| All debt funds purchased after April 1, 2023 |
Taxed as per income tax slab (no LTCG benefit) |
| Debt funds purchased before April 1, 2023 |
Grandfathered - 20% with indexation for LTCG |
Step-by-Step: How to Do Tax Loss Harvesting
Example Scenario
Current Situation (Feb 2026):
- You have ₹80,000 LTCG gains from selling some funds in FY 2025-26
- You hold HDFC Small Cap fund at 15% loss (₹30,000 unrealized loss)
- You hold Axis Midcap fund at 12% loss (₹25,000 unrealized loss)
Action Before March 31, 2026:
- Sell HDFC Small Cap (book ₹30,000 loss)
- Sell Axis Midcap (book ₹25,000 loss)
- Total losses booked: ₹55,000
Tax Calculation:
| Item |
Amount |
| LTCG Gains |
₹80,000 |
| Minus: Harvested Losses |
-₹55,000 |
| Net Taxable Gains |
₹25,000 |
| Minus: ₹1L exemption |
-₹25,000 |
| Final Taxable Amount |
₹0 |
| Tax Saved |
₹6,875 (55,000 × 12.5%) |
After April 1, 2026:
- Wait 30 days (to avoid wash sale concerns, though India has no explicit rule)
- Rebuy HDFC Small Cap + Axis Midcap with same amount
- Your portfolio composition stays the same
- You've legally saved ₹6,875 in taxes!
Which Funds Should You Harvest?
✅ Good Candidates for Tax Harvesting:
- Funds held for more than 1 year (to get LTCG treatment)
- Funds showing 10%+ unrealized loss
- Funds you still believe in long-term (so you'll rebuy)
- Funds where you have no lock-in (not ELSS)
❌ Don't Harvest These:
- ELSS funds (3-year lock-in)
- Funds held less than 1 year (STCG at 20% - too high)
- Funds you plan to exit permanently anyway
- Very small losses (<₹5,000 - not worth transaction costs)
Common Tax Harvesting Mistakes to Avoid
⚠️ Mistake #1: Selling and Rebuying Same Day
While India doesn't have explicit "wash sale" rules like the US, it's safer to wait 30 days before rebuying to avoid scrutiny.
⚠️ Mistake #2: Forgetting About Exit Loads
Many funds charge 1% exit load if sold within 1 year. Make sure exit load doesn't eat into your tax savings!
⚠️ Mistake #3: Harvesting Short-Term Losses
STCG (held <1 year) is taxed at 20%. Only harvest if the loss is substantial, as you can't offset LTCG with STCG efficiently.
⚠️ Mistake #4: Not Tracking Cost Basis
When you rebuy, your new cost basis is the rebuy price. Keep proper records for future tax calculations!
Tax Harvesting Deadlines
| Action |
Deadline |
| Sell funds to book losses |
March 31, 2026 |
| Wait period (recommended) |
30 days from sale |
| File ITR with harvested losses |
July 31, 2026 |
| Carry forward losses (if not used) |
8 years |
How RAYR Fin Helps with Tax Harvesting
RAYR Fin automatically identifies tax harvesting opportunities in your portfolio:
- ✅ Scans all funds held for more than 1 year
- ✅ Calculates unrealized losses for each fund
- ✅ Estimates tax savings if you harvest
- ✅ Suggests which funds to sell before March 31
- ✅ Tracks your ₹1L LTCG limit used so far this year
- ✅ Alerts you in Feb-March when harvesting deadline approaches
Frequently Asked Questions
Can I offset LTCG with STCG losses?
Yes, but it's not efficient. STCG losses can offset LTCG, but LTCG losses cannot offset STCG.
What if I have more losses than gains?
Carry forward the remaining losses for up to 8 years. You MUST file ITR to claim carry forward.
Do I need to inform my broker/AMC?
No. You sell normally. Declare gains/losses when filing your Income Tax Return.
Can I harvest losses from stocks too?
Yes! Same rules apply - LTCG/STCG on stocks can be offset with mutual fund losses and vice versa.