Cut Your Tax Bill Before March 31: How Tax Harvesting Can Help Investors Save More

As the financial year 2025–26 approaches its end, investors still have a limited window to legally reduce their tax burden through a strategy known as tax harvesting. With the deadline set for March 31, financial planners say timely action can help individuals optimize returns and avoid paying unnecessary capital gains tax on investments such as stocks and equity mutual funds.

What Is Tax Harvesting?

Tax harvesting is a financial planning technique used to manage capital gains taxes by strategically booking profits or losses before the financial year closes. The method is commonly applied to equity investments, where capital gains tax can significantly affect overall returns if not planned properly.

Since India’s new financial year begins on April 1, any gains or losses must be realized by March 31 to count toward the current tax year. This means investors who want to use this strategy must review their portfolios and act before the deadline.

Tax harvesting is broadly divided into two approaches:

• Tax-Gain Harvesting

• Tax-Loss Harvesting

Both methods aim to minimize tax liability and improve post-tax investment performance, but they work in different market situations.

Tax-Gain Harvesting Explained

Tax-gain harvesting is typically used when investments are in profit. In this strategy, an investor sells long-term holdings—such as shares or equity mutual funds held for more than 12 months—to realize gains within the tax-exempt threshold.

Under current rules, long-term capital gains (LTCG) up to ₹1.25 lakh per financial year are tax-free for eligible equity investments. If investors do not utilize this exemption, it cannot be carried forward. By selling profitable assets within this limit and reinvesting the proceeds, investors effectively reset their purchase price.

This reset reduces future taxable gains because the new acquisition cost becomes the reference point for tax calculations. Over time, this can substantially lower overall tax exposure, especially for long-term investors.

Tax-Loss Harvesting Strategy

Tax-loss harvesting works in the opposite scenario—when investments are trading below their purchase price. Here, investors sell underperforming stocks or fund units to book a capital loss. These losses can then be adjusted against taxable capital gains earned from other investments.

For example, if an investor has gains from one stock but losses from another, the loss can offset the gain, reducing total taxable profit. However, tax rules specify that long-term capital losses can only be set off against long-term gains, not short-term ones. Understanding these classifications is essential to applying the strategy correctly.

Financial experts emphasize that loss harvesting is not merely about tax savings—it also encourages portfolio discipline. Selling weak assets can help investors eliminate consistently underperforming securities and rebalance holdings toward stronger opportunities.

Why Timing Matters

Timing is critical in tax harvesting because gains or losses only count when they are actually realized through a transaction. Simply holding an investment that is showing profit or loss on paper does not affect tax liability. Investors must complete the sale before March 31 for it to be considered in the current financial year.

Waiting until April would push the transaction into the next tax cycle, eliminating any immediate tax benefit.

Practical Tips for Investors

Financial planners suggest the following steps for those considering tax harvesting:

• Review your portfolio early: Identify profitable and loss-making investments well before the deadline.

• Use exemptions wisely: Take advantage of annual tax-free limits instead of letting them go unused.

• Avoid emotional decisions: Tax strategies should align with long-term financial goals, not short-term market noise.

• Reinvest strategically: If you sell assets, consider reallocating funds into diversified or fundamentally stronger investments.

Experts also caution investors against immediately repurchasing the same securities they sold solely for tax purposes. Doing so may defeat the broader objective of portfolio improvement and diversification.

Final Word

Tax harvesting is a powerful yet often overlooked tool for reducing tax liability and enhancing net returns. Whether through booking gains within the exemption limit or offsetting profits with losses, the strategy can help investors make the most of existing tax rules.

With just weeks left before the financial year closes, acting promptly could make a meaningful difference to your tax bill. Reviewing your investments now—and taking calculated action—may help you enter the next financial year with both a stronger portfolio and lower taxes.