A Step-by-Step Guide to Tax Harvesting for FY 2025

What Is Tax Harvesting?

Tax harvesting is a strategic approach to minimizing tax liabilities by selling and repurchasing securities to realize capital gains or losses effectively.

How It Works (Step-by-Step Guide)

Step 1: Identify Underperforming Assets

• Review your portfolio and spot stocks or mutual funds that are in loss.

Step 2: Realize Losses

• Sell underperforming stocks or mutual funds to book a loss, which can offset gains from other profitable investments.

Step 3: Offset Gains

• Apply the realized losses to reduce your taxable STCG or LTCG.

Step 4: Repurchase Assets

• Buy back the same or similar assets to maintain portfolio exposure.

Example: If you have unrealized gains of ₹2 lakh from one stock and unrealized losses of ₹70,000 from another, by selling the losing stock, you can offset ₹70,000 of your gain, reducing your taxable LTCG to ₹1.3 lakh.

Benefits of Tax Harvesting

• Reduces taxable income from capital gains.
• Ensures full utilization of the ₹1.25 lakh LTCG exemption.
• Helps maintain portfolio alignment without incurring significant tax outflows.
Pro Tip:

Be mindful of the wash sale rule, which may disallow losses if the same asset is repurchased within a specific timeframe.

Monitoring and Planning

• Regularly review your portfolio to capitalize on tax-saving opportunities.
• Consult a financial advisor to align tax-saving strategies with long-term financial goals.

Maximize your returns with smart tax harvesting strategies. Start planning today for a financially secure tomorrow!