With the financial year nearing its close, investors have until March 27, 2025 — the effective last date due to Eid holidays — to utilise tax harvesting, a smart strategy that can reduce your capital gains tax burden significantly.
What is tax harvesting?
Tax harvesting involves selling underperforming stocks or mutual funds that are currently in loss to offset gains made on profitable investments within the same financial year. This practice, widely used in the US, is now gaining traction among Indian investors as well.
“In the US, it’s common for investors to book investment losses near the end of the financial year to reduce their tax liabilities and create tax assets,” says Karan Aggarwal, Co-Founder & CIO of Elever. “This strategy, known as tax loss harvesting, can also be leveraged by Indian investors to generate tax alpha.”
How it works:
- Sell stocks or mutual funds in a loss position before March 27 to realise a capital loss.
- Use the loss to offset gains made on equities, mutual funds, or even real estate.
- If there are no gains this year, the loss can be carried forward for up to 8 years to offset future capital gains.
Important rules:
- Cannot offset losses against salary income.
- Cannot use carried-forward losses to offset derivative gains.
- Maintain market exposure by repurchasing the same stock after 2 days or buying a similar asset or fund in the same category.
Tax harvesting is especially useful when rebalancing your portfolio at the end of the year. By tactically realising losses now, investors can optimise their tax outgo while remaining invested in the market. Just remember — March 27, 2025, is the final date to act on this strategy this year.
