TaxFinancial Glossary
Tax Harvesting
Definition
A strategy of selling investments at a gain up to the tax-exempt threshold and immediately reinvesting to reset the cost basis. For equity investments, LTCG up to Rs 1.25 lakh per year is tax-free. By booking gains up to this limit annually, you can effectively withdraw up to Rs 1.25 lakh in equity gains every year without paying any tax.
Why It Matters
Tax harvesting is one of the most underutilized strategies in Indian personal finance. If you hold equity investments with significant unrealized gains, selling Rs 1.25 lakh worth of gains every March and reinvesting the same day resets your cost basis higher. Over a 20-year investing period, disciplined annual tax harvesting can save Rs 5-10 lakh in cumulative capital gains tax.