LTCG Harvesting: Book ₹1.25 Lakh Tax-Free Every Year (FY 2025-26)
You hold equity funds and listed shares for the long term, pay 12.5% on every rupee of gain above ₹1.25 lakh when you finally sell — and never touch the portfolio in between. That patience is quietly costing you. The ₹1.25 lakh annual long-term capital gains exemption under Section 112A does not roll over. Use it or lose it, every single financial year. For a ₹15L+ earner sitting on a growing equity corpus, skipping this for a decade can mean an extra ₹1.5 lakh+ of tax on the same gains you were always going to book.
This is "LTCG harvesting" — selling enough long-held units each year to realise about ₹1.25 lakh of gain tax-free, then buying back to stay invested at a reset cost. Done right, it lowers your eventual tax bill without changing your asset allocation by a single rupee.
Summary
| Item | Detail (FY 2025-26) |
|---|---|
| Annual LTCG exemption (Sec 112A) | ₹1.25 lakh per PAN, per year |
| LTCG rate above exemption | 12.5% (no indexation) |
| STCG rate (held < 12 months) | 20% under Section 111A |
| Holding period for "long term" | More than 12 months (equity) |
| Tax saved per year if fully harvested | ₹15,625 (₹1.25L × 12.5%) |
| 10-year compounded tax saved (illustrative) | ₹1.5 lakh+ |
| Best window to harvest | Jan–Mar, before 31 March |
How LTCG harvesting actually works
Step 1: Track your unrealised long-term gain
Open your AMC or broker capital-gains statement and filter for units held more than 12 months. You only want the gain portion (current value minus cost), not the total value. Add up the long-term gain sitting unrealised across all equity funds and listed shares — Section 112A pools them together under one ₹1.25 lakh limit per PAN.
Action: pull a consolidated capital-gains report from your CAMS/KFintech statement so you are not guessing.
Step 2: Sell just enough to realise ~₹1.25 lakh of gain
Redeem the specific units whose combined gain lands near, but not over, ₹1.25 lakh. Because this gain is fully covered by the exemption, the tax on it is zero. You are deliberately "using up" this year's free allowance.
Action: if you have already realised some LTCG this year (say ₹40,000 from a separate sale), only harvest the remaining ₹85,000 of headroom.
Step 3: Buy back to stay invested at a higher cost base
Reinvest the proceeds into the same or a similar fund. Your new purchase resets the cost of acquisition to today's NAV. Every future rupee of growth now starts from this higher base — so when you eventually exit for real, a chunk of the gain has already been "washed" tax-free.
Action: leave a short gap (a day or two) before re-buying rather than a same-second switch, to keep the transactions clean against the General Anti-Avoidance Rule.
Step 4: Repeat next April
The exemption refreshes on 1 April. Harvesting ₹1.25 lakh of gain every year for years, instead of letting one ₹12 lakh gain build up and taxing it all at once, is the entire edge.
The SIP trap competitors skip
If you invest through a SIP, every monthly instalment has its own purchase date and its own 12-month clock. On any given day, your folio is a mix of long-term units (older than 12 months) and short-term units (younger). Redemptions follow FIFO — first units in are first out — so an unplanned redemption can accidentally sell short-term units and trigger 20% STCG under Section 111A instead of the tax-free LTCG you intended.
Before harvesting a SIP folio, identify exactly which instalments have crossed 12 months and redeem only against those. The harvest only works on the genuinely long-term slice.
When harvesting is NOT worth it
Harvesting is not free of friction, and for small portfolios the costs can eat the benefit:
- Exit load: many equity funds charge ~1% if you redeem within 12 months. Harvest only the long-term units that are past any exit-load window.
- Securities Transaction Tax (STT): paid on both the sell and the re-buy. On large redemptions this is a real drag.
- ELSS lock-in: units bought to claim Section 80C are locked for 3 years and cannot be harvested early. Skip these.
- NAV gap risk: if you wait a day before re-buying and the market jumps, you re-enter higher. The tax saved (max ₹15,625/year) is small, so a 1–2% market move against you wipes it out.
Rule of thumb: harvesting earns its keep when your unrealised long-term gain is comfortably above ₹1.25 lakh and your transaction costs stay well under the ₹15,625 you save.
Real example: ₹28L CTC Bengaluru, ₹18L equity corpus
| Item | Without harvesting | With annual harvesting |
|---|---|---|
| Equity corpus today | ₹18,00,000 | ₹18,00,000 |
| Unrealised LTCG built over 8 years | ₹6,00,000 | Reset yearly |
| LTCG taxed on final exit | ₹6,00,000 − ₹1.25L = ₹4.75L | Near ₹0 |
| Tax at 12.5% | ₹59,375 (one-time) | ₹0 across the years |
| Net tax saved | — | ~₹59,000 |
By booking roughly ₹1.25 lakh of gain tax-free each year and rebuying, this investor resets the cost base annually, so almost the entire ₹6 lakh gain is sheltered by eight years of exemptions instead of being taxed in one lump.
What to do this week
- Download your consolidated capital-gains statement from CAMS/KFintech and total your unrealised long-term gain.
- Check how much LTCG you have already realised this financial year — subtract it from ₹1.25 lakh to find your remaining headroom.
- Identify equity fund units held over 12 months with no exit load and no ELSS lock-in.
- Redeem just enough to realise your remaining headroom, wait a day, and rebuy the same fund.
Make it an annual ritual
LTCG harvesting is not a one-time trick — it is a discipline you repeat every January-to-March before the financial year closes. The exemption is ₹1.25 lakh per PAN under Section 112A, it resets each year, and unused headroom is gone for good. The investor who harvests for ten years quietly pays far less tax than the one who lets a single large gain accumulate, for exactly the same underlying portfolio.
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