Tax Harvesting: ₹1.25L Annual LTCG Reset

The most underused legal tax saving in India. Every April 1, the ₹1.25L LTCG exemption resets. Sell equity MF or shares with up to ₹1.25L unrealised gain, book the profit tax-free, buy back immediately. Cost basis resets to current price. Do this every year: save ₹15,625/year in tax, permanently reduce future tax liability.

Exactly how harvesting works: You hold HDFC Flexi Cap MF SIP since Jan 2022. By Feb 2026 (48 months = 4 years), unrealised LTCG = ₹2.8L. Step 1: Redeem units worth ₹1.25L of LTCG (you don't need to redeem all units, only enough to book ₹1.25L gain). Step 2: Immediately buy back the same amount in the same fund. Step 3: Your new cost basis is today's NAV. Gain booked: ₹1.25L, tax: zero (within exemption). Next year: fresh ₹1.25L exemption available. How much to redeem: Not the full portfolio. Just enough units to realise ₹1.25L of gains. If your average gain is 50% (bought at ₹100, now ₹150): redeem ₹3.75L worth of units → ₹1.25L is gain. Buy back ₹3.75L immediately at ₹150 NAV. Net cash outflow: zero (sell and buy same amount). Transaction costs: exit load (if within 1 year, avoid) + STT on sell (₹0.001% on ₹3.75L = ₹3.75, negligible).