Profit harvesting: how to book ₹1.25 lakh of equity gains tax-free every year
Every financial year, the tax law hands equity investors a gift: the first ₹1.25 lakh of long-term capital gains (LTCG) on equity is completely tax-free. Most people waste it — they hold their mutual funds for years and sell once, using that exemption a single time. "Profit harvesting" turns it into a benefit you claim every year. Here's how it works, and the conditions that matter.
The yearly gift
Under Section 112A, for listed shares and equity mutual funds held over 12 months:
- The first ₹1,25,000 of your LTCG in a financial year is tax-free.
- Gains above ₹1.25 lakh are taxed at 12.5% (without indexation).
- This ₹1.25 lakh is per person, per year, across all your equity put together.
The strategy
Instead of letting gains pile up, you "harvest" the exemption each year:
- Every ~12 months, sell enough units to book exactly ₹1.25 lakh of long-term gain — which is tax-free.
- Buy the units back immediately. Your purchase price (cost base) is now stepped up, so future gains are smaller.
- You've effectively saved ₹1.25 lakh × 12.5% = ₹15,625 in tax for that year — legally.
Do this consistently and it compounds: a family of four, each harvesting their own portfolio for 20 years, can save on the order of ₹12 lakh in tax over time.
Short-term vs long-term: the full picture
Whether a gain is short-term or long-term — and the rate it attracts — depends on the asset and how long you held it. Here's where things stand after Budget 2024 (effective 23 July 2024):
| Asset class | Long-term if held for | Short-term gain (STCG) | Long-term gain (LTCG) |
|---|---|---|---|
| Listed equity shares & equity mutual funds | more than 12 months | 20% (Section 111A) | 12.5% on gains above ₹1.25 lakh/year (Section 112A) |
| Debt mutual funds (bought on/after 1 Apr 2023) | always short-term | Your slab rate | Your slab rate — no LTCG benefit |
| Property — land & buildings | more than 24 months | Your slab rate | 12.5% without indexation* |
| Gold, jewellery, unlisted shares & other assets | more than 24 months | Your slab rate | 12.5% without indexation |
*Property bought before 23 July 2024: you may choose 12.5% without indexation or 20% with indexation — whichever gives the lower tax. "Slab rate" means the gain is added to your income and taxed at your normal income-tax slab.
Before you do it
- It applies to equity (shares and equity mutual funds) held more than 12 months — not debt funds or short-term holdings.
- Each family member can use their own ₹1.25 lakh — but only on genuinely their own money. If you gift funds to your spouse or minor child and invest in their name, the income is clubbed back to you (Section 64). No shortcuts there.
- Watch exit loads, STT and brokerage, and the 1–2 day gap between selling and rebuying (the price can move against you).
- Keep clean records of every harvest — you'll need them at sale.
Takeaway: Don't waste the ₹1.25 lakh yearly exemption. Harvest it each year to reset your cost base and keep more of your gains — for every family member with their own investments.
Want a harvesting plan built around your portfolio? Talk to us — we'll map it out.
AI-assisted note, reviewed by Chartford Consultancy. Rules and figures can change with government notifications — talk to us to confirm exactly what applies to your business.
