Tax-loss harvesting in India

Turning paper losses into real tax savings, legally, and knowing where the limits are.

Vitta-Kosh team · Updated 25 September 2026 · 7 min read

The idea in one paragraph

Capital gains tax is charged on your net gains for the year. If you have booked gains and also hold investments that are currently below your purchase price, selling the losing ones turns a paper loss into a realised loss. That loss can be set off against your gains, reducing the tax you pay. This is tax-loss harvesting.

The set-off rules

Capital losses cannot be set off against salary, business or other income. Losses you cannot use this year can be carried forward for 8 assessment years, but only if you file your income tax return by the due date for the year of the loss.

Worked example

In the financial year you have booked:

• ₹80,000 STCG from selling a stock held for 7 months (taxed at 20%)
• Another stock, bought 5 months ago, is down ₹50,000 on paper

Without harvesting, tax is 20% of ₹80,000 = ₹16,000 plus cess. Sell the losing stock before 31 March and the net STCG falls to ₹30,000, so tax is ₹6,000 plus cess. That is a saving of ₹10,000.

If you still like the business, you can buy it back later. Your new cost is the new purchase price, and the holding period restarts.

Harvesting gains too

The same logic works in reverse for long-term equity gains. The first ₹1.25 lakh of LTCG on listed equity and equity funds each year is tax-free. Some investors sell and immediately rebuy enough units to book gains up to that limit, which raises their cost for future years. This is often called tax-gain harvesting.

Traps to avoid

• Selling and rebuying the same day. An intraday sale and buy-back of the same share is treated as speculative, not a capital gain or loss. Keep them on different days, and remember delivery-based settlement takes time.
• Assuming there is no scrutiny. India does not have a formal "wash sale" rule like the US, but transactions done only to avoid tax can be questioned under general anti-avoidance principles. Harvesting as part of a genuine portfolio review is on firmer ground.
• Forgetting costs. Brokerage, STT, stamp duty and exchange charges come off your saving. On small losses the saving may not be worth the trouble.
• Resetting the holding period. Rebuying restarts the 12-month clock. A position that was 11 months old and about to become long-term goes back to short-term.
• Missing the ITR deadline. A loss you plan to carry forward is lost if the return is filed late.
• Mixing lots. For demat shares, the oldest units are treated as sold first. Your loss may come from different lots than you expected.

A year-end checklist

1. In February or early March, list the gains you have already booked this year, split into STCG and LTCG.
2. List holdings that are below cost, and whether each loss would be short-term or long-term.
3. Work out which sales reduce tax, after costs.
4. Decide whether you really want to own each position again, not just for tax.
5. Execute before the last trading day of March, allowing for settlement.
6. File your return on time so losses can be carried forward.