This tax strategy lets you turn losses into tax savings before year-end

As the end of the financial year approaches, tax planning comes into focus for long-term capital gains (LTCG) from listed equities and equity mutual funds. One strategy that can influence an investor’s tax outcome is tax-loss harvesting, a method of managing gains and losses within a portfolio to optimise tax liability.

An tax expert explains, “Tax harvesting separates the investor who actively manages their portfolio from one who merely holds it. Both may hold identical portfolios, yet the active investor steadily trims their tax liability while the passive investor defers it all, until exit triggers a larger tax outgo.”

Under Indian tax law, LTCG enjoys an annual exemption of ₹1.25 lakh.

Active management strategies, such as booking gains up to this threshold, can steadily lower taxable outgo.

Crucially, this exemption does not carry forward. Any unused portion expires on March 31, creating a permanent opportunity cost that cannot be reclaimed, regardless of portfolio growth.

Tax-loss harvesting typically involves selling underperforming stocks or mutual funds to create capital losses, which can then offset gains from other investments. If there are no gains in the same financial year, these losses can be carried forward for up to eight years.

For mutual fund investors, this process is relatively straightforward—selling one fund and buying another in the same category maintains exposure. Stock investors may repurchase shares after a short gap or switch to similar assets to stay invested.

While losses cannot offset salary income and derivative gains are excluded, careful planning ensures that available exemptions are fully utilised. For investors, even portfolios performing well can benefit from strategic gain booking or loss harvesting to make the most of the fiscal year.

With March 31 fast approaching, tax-loss harvesting remains a key tool for those looking to optimise the impact of LTCG exemptions without altering long-term investment objectives.

Source from: https://www.cnbctv18.com/personal-finance/income-tax-march-31-strategy-lets-you-turn-losses-into-savings-ws-l-19871641.htm