Tax Loss Harvesting in India: Save Big on Capital Gains Tax
Learn how tax loss harvesting works in India. Reduce capital gains tax, offset losses, and maximize returns with smart portfolio strategies.
WHAT EXACTLY IS TAX LOSS HARVESTING
We all know that capital losses can be set off against capital gains. Of course, there are nuances, but we will get into that later. You not only pay taxes on your net capital gains (net of capital losses), but such capital losses can also be carried forward for 8 years for future set-off. Now, this opens up a massive opportunity for investors who are sitting on book losses in their equity portfolio.
Take the case of FY26. Everything seemed to be OK in February, till Trump declared war on Iran on the last day of February. In the last 1 months of trading, the Nifty has lost -8.6%, but that is just the average index figure. The fall in specific companies is much bigger. That is a big opportunity. If you are sitting on notional losses, don’t wait. Book these losses and adjust them against gains. Then, buy back these stocks so your portfolio is unaffected.
HOW TO PROFIT FROM THE LOSSES OF MARCH 2026?
That does sound rather paradoxical, but let us look at 15 stocks on the Nifty 50 that have corrected the most in the month of March 2026.
| Stock Symbol | Last Traded Price (LTP) | 52-Week High | 52-Week Low | 1-Month Returns | Fall from the 52-Week High |
|---|---|---|---|---|---|
| TMPV | 317.50 | 744.00 | 303.50 | -18.91% | -57.33% |
| MARUTI | 12,701.00 | 17,370.00 | 11,059.45 | -16.51% | -26.88% |
| HDFCLIFE | 613.00 | 820.75 | 590.05 | -16.49% | -25.31% |
| ADANIENT | 1,885.00 | 2,616.50 | 1,813.70 | -14.95% | -27.96% |
| LT | 3,659.00 | 4,440.00 | 2,965.30 | -14.64% | -17.59% |
| EICHERMOT | 6,995.00 | 8,230.00 | 4,999.95 | -14.59% | -15.01% |
| BAJAJFINSV | 1,749.50 | 2,195.00 | 1,662.70 | -14.29% | -20.30% |
| SHRIRAMFIN | 955.80 | 1,108.00 | 566.50 | -13.47% | -13.74% |
| ULTRACEMCO | 11,200.00 | 13,110.00 | 10,325.00 | -13.43% | -14.57% |
| INDIGO | 4,282.10 | 6,232.50 | 3,895.20 | -13.20% | -31.29% |
| HDFCBANK | 780.10 | 1,020.50 | 741.05 | -13.19% | -23.56% |
| BAJFINANCE | 883.00 | 1,102.50 | 787.90 | -12.83% | -19.91% |
| KOTAKBANK | 370.40 | 460.38 | 355.25 | -12.75% | -19.54% |
| AXISBANK | 1,221.00 | 1,418.30 | 1,032.35 | -12.50% | -13.91% |
| SBIN | 1,062.60 | 1,234.70 | 730.00 | -12.15% | -13.94% |
| Data Source: NSE |
The shaded column in the table above shows the 1-month returns, roughly corresponding with the start of the US-Iran war in West Asia. One can see that marquee names have corrected sharply in just one month. If you had bought some of these stocks a month back, you would be sitting on deep notional losses on each of them. The combined loss would be much higher. While you are not sure how much time it will take for the stocks to bounce back, you can at least make the best of the situation.
Instead of allowing the notional losses to get rolled over to the next financial year, you can book these losses in this year and take a fresh position in the same stock in the same quantity a day or two later. Being a 1-month fall, it will be a short-term loss, which can be written off against long term capital gains and short-term capital gains. Let us look at how this tax loss harvesting will actually work?
TAX LOSS HARVESTING AT WORK IN ABOVE CASE
In the above case, let us assume that you had invested a sum of ₹4 lakhs each in 5 stocks; Maruti Suzuki, HDFC Life, Larsen & Toubro, Eicher Motors, and HDFC Bank. How would your ₹20 lakh portfolio structured in February 2026 look like at the end of March?
| Stock Name | Investment | 1-Month Returns | Notional Loss | Portfolio Value |
|---|---|---|---|---|
| Maruti Suzuki | 4,00,000 | -16.51% | -66,040 | 3,33,960 |
| Shriram Finance | 4,00,000 | -13.47% | -53,880 | 3,46,120 |
| Larsen & Toubro | 4,00,000 | -14.64% | -58,560 | 3,41,440 |
| Eicher Motors | 4,00,000 | -14.59% | -58,360 | 3,41,640 |
| HDFC Bank | 4,00,000 | -13.19% | -52,760 | 3,47,240 |
| Portfolio Value | 20,00,000 | -14.48% | -2,89,600 | 17,10,400 |
In the last 1 month, your investment of ₹20 lakhs has shrunk to ₹17.10 lakhs and you are sitting on a notional loss of ₹(2,89,600). The first step in tax loss harvesting is to book these losses and convert the ₹2,89,600 into an actual loss.
Now let us also assume that you have long term capital gains of ₹4,50,000 and short-term capital gains of ₹2,80,000 already booked during the year FY26. Let us now do a comparative analysis of the tax liability with and without Tax-Loss harvesting.
| WITHOUT TAX-LOSS HARVESTING | WITH TAX LOSS HARVESTING | ||
|---|---|---|---|
| ST Capital Gains | ₹2,80,000 | ST Capital Gains | ₹2,80,000 |
| Tax at 20.8% (4% Cess) | ₹58,240 | Harvesting Loss | ₹2,80,000 |
| LT Capital Gains | ₹4,50,000 | Tax on STCG | Nil |
| Base Exemption | ₹1,25,000 | LT Capital Gains | ₹4,50,000 |
| Taxable LTCG | ₹3,25,000 | Base Exemption | ₹1,25,000 |
| LTCG Tax at 12.5% | ₹40,625 | Harvesting Loss | ₹9,000 |
| Total Capital Gains Tax | ₹98,865 | Taxable LTCG | ₹3,16,000 |
| LTCG Tax at 12.5% | ₹39,500 | ||
| Total Capital Gains Tax | ₹39,500 |
One of the basic rules is that if you have a short-term loss, first write off against short term gains as they are taxed at a higher rate, and then against long term capital gains. In the above case, just by tax-loss harvesting (converting book losses into actual losses), you have reduced your capital gains tax outflow from ₹98,865 to ₹39,500.
In tax loss harvesting, the practice is to buy back the sold stocks around the same price within a day or two. Avoid buying back the stock on the same day as it could be classified as an intraday trade and the purpose of the tax loss harvesting is lost. Ideally, don’t wait till the end of March and try to finish tax loss harvesting by the third week of March each year.
DOES TAX LOSS HARVESTING STILL WORK IF I DO NOT HAVE CAPITAL GAINS?
This is a common question. Should I still do tax loss harvesting if there are no gains in this year? Yes, you should. If there is an opportunity to do tax loss harvesting, do it irrespective of whether you have made profits this year, or not. That is because, even if you do not have gains this year, you can still carry forward your losses for a period of 8 assessment years.
This rule applies to short-term capital losses and also to long-term capital losses. So, even if you do not have capital gains this year, you can still write it off against gains in any of the next 8 years. The current crash in March is an opportunity for tax-loss harvesting. Whether or not you have profits in this fiscal year, you should make the best of the opportunity.
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