What is tax harvesting?

Capital gain and loss harvesting is a tax planning strategy where investors sell certain investments to optimize how much capital gains tax they pay during a financial year.

There are two common strategies used in harvesting.

Capital gains harvesting

Capital gain harvesting means selling investments with unrealised gains to utilise available tax exemptions.

For example, under current tax rules:

Long-term capital gains (LTCG) on listed equity shares and equity mutual funds are tax-free up to ₹1.25 lakh per financial year.

Instead of allowing gains to accumulate and paying tax later, investors may choose to:

This strategy helps reduce future tax liability on capital gains.

Capital loss harvesting

Capital loss harvesting means selling investments currently in loss to reduce tax on capital gains.

The realised loss can be used to:

Under the Income-tax Act:

Unadjusted losses can be carried forward for up to 8 assessment years, provided the income tax return is filed on time.

How tax harvesting helps you to save tax

Capital gains taxation rules make annual harvesting an effective tax optimisation strategy.

Equity capital gains tax rates

For listed equity shares and equity mutual funds:

Short-Term Capital Gains (STCG)

Holding period: up to 12 months

Tax rate: 20% + surcharge + 4% cess

Long-Term Capital Gains (LTCG)

Holding period: more than 12 months

Taxation of certain debt mutual funds

Certain debt mutual funds are taxed at slab rates, depending on investor income. This makes tax planning and harvesting strategies even more relevant for investors holding diversified portfolios.

How to use 1 Finance Tax Harvesting Calculator

The calculator automatically analyses your mutual fund portfolio and estimates potential tax savings from harvesting strategies.

Step 1 – Enter Basic Details

You enter:

These details help fetch your mutual fund transaction and holding data.

Step 2 – Portfolio analysis

The calculator analyses your mutual fund investments and identifies:

Step 3 – Tax classification

Each investment is classified based on holding period into:

Applicable tax rules are applied:

How the calculator estimates potential tax savings

1 Finance Tax Harvesting Calculator evaluates two possible scenarios.

Scenario 1: When your portfolio has net gains

If your portfolio shows unrealised long-term capital gains, the calculator estimates how much gain can be realised within the tax-free LTCG limit.

Available exemption: ₹1.25 lakh – LTCG already realised during the financial year

The tax that would otherwise be payable on these gains represents the potential tax saving through capital gain harvesting.

Scenario 2: When your portfolio has net losses

If your portfolio has unrealised losses, harvesting those losses can help reduce taxes.

The calculator estimates:

Capital losses can be carried forward for up to 8 assessment years.

Example: Capital gains harvesting

Suppose your mutual fund portfolio has:

₹3.75 lakh unrealised long-term capital gain

Instead of selling everything in a single year:

Each year:

₹1.25 lakh is tax-free

By spreading gains across multiple years, investors can significantly reduce capital gains tax over time.

After harvesting, investors may reinvest immediately to maintain their portfolio allocation.

Example: Capital loss harvesting

Suppose in FY 2025-26 you have:

If you harvest the loss:

Net LTCG becomes:

₹2,00,000 – ₹80,000 = ₹1,20,000

Since this falls within the ₹1.25 lakh exemption limit, the entire gain becomes effectively tax-free.

This reduces your capital gains tax liability.

Capital gain harvesting vs. capital loss harvesting

The calculator evaluates both strategies together to maximise tax efficiency.

Old vs. new tax regime: Impact on Capital Gains

Capital gains tax rates remain the same under both regimes.

However:

The calculator helps evaluate harvesting strategies within the context of your overall tax planning.

Suggested actions based on your inputs

After analysing your portfolio, the calculator may suggest actions such as:

This makes the output actionable and practical for investors.

Important considerations before harvesting

Capital gain and loss harvesting is a tax optimisation strategy, not a replacement for sound investment planning.

Before executing harvesting transactions, consider:

The calculator uses FY 2025-26 provisions:

Actual tax outcomes may vary based on individual circumstances.

This calculator is intended for educational and planning purposes only. It highlights potential tax savings from capital gain and loss harvesting but reflects only one part of your overall tax situation. Effective tax planning requires considering your complete financial profile, income sources, and long-term goals. A Qualified Financial Advisor (QFA) or tax professional can help structure the right strategy. Relying solely on DIY tools may overlook important aspects of tax efficiency and compliance.