# Tax harvesting in mutual funds: using the ₹1.25 lakh limit each year

The ₹1.25 lakh tax-free limit on long-term equity gains starts again every April. Any part not used by 31 March lapses.

Full page: https://discovermf.com/guides/tax-harvesting
Last checked 23 Oct 2026, from DiscoverMF.

Long-term gains on equity-oriented funds are tax-free up to ₹1.25 lakh in each financial year. Tax harvesting means redeeming enough units to book gains up to that limit, then buying back. No tax is due on the gain, and the units bought back carry a higher cost, so less gain is left to tax when you finally sell.

## How it works

1. Find units held more than 12 months in your equity funds. Your [capital gains statement](https://discovermf.com/guides/capital-gains-statement) or account statement shows the date and cost of each purchase.
2. Work out how many units give a long-term gain of up to ₹1.25 lakh. Include long-term gains you have already made this financial year on funds and listed shares, because the limit is shared.
3. Redeem those units.
4. Buy back with the proceeds.

The new units have a new cost, the price you pay for them, and a new purchase date. Their 12-month period starts again.

## An example

You bought units for ₹5 lakh in May 2024. In February 2027 they are worth ₹6.2 lakh, a long-term gain of ₹1.2 lakh. Redeeming them and buying back ₹6.2 lakh books that gain with no tax, and your cost becomes ₹6.2 lakh.

If the holding later grows to ₹8 lakh and you sell, the gain counted for tax is ₹1.8 lakh. Without the harvest it would have been ₹3 lakh.

## What to check

- **Exit load.** Many equity funds charge 1% on units sold within a year. Units held more than 12 months are usually past it; every fund page here shows the scheme's terms. The units bought back start a new exit-load period.
- **ELSS lock-in.** ELSS units can be redeemed only after three years, and units bought back into an ELSS start a new three-year lock-in.
- **Stamp duty.** Every purchase carries stamp duty of 0.005%. On ₹6.2 lakh that is ₹31.
- **The gap between sale and purchase.** The redemption and the purchase are separate transactions. A purchase made on a later day gets that day's NAV, which can be higher or lower.
- **The 31 March deadline.** To count in a financial year, the redemption has to be processed in that year, at the latest on the last business day before 1 April.

## Harvesting losses

A loss on a redemption can reduce the tax on other gains.

- **Short-term losses** can be set off against both short-term and long-term gains.
- **Long-term losses** can be set off only against long-term gains.
- **Unused losses** can be carried forward for eight years and set off against future gains under the same rules, if the return for the year of the loss is filed by its due date.

Selling at a loss and buying back works the same way as for gains: the new units have a new cost and date.

## Debt funds

Gains on debt funds bought on or after 1 April 2023 are taxed at your slab rate with no tax-free limit. Booking them early brings the tax forward and does not reduce it.

## Questions

### Does a harvested gain have to be reported if no tax is due?

Yes. The redemption is a sale like any other. It appears in your capital gains statement and belongs in your income tax return.

### Can I carry the unused part of the ₹1.25 lakh limit to next year?

No. The limit applies to each financial year on its own, and any part not used lapses on 31 March.

### Can I buy back the same fund straight away?

Yes. There is no waiting period for mutual fund units. The units bought back have a new cost and a new purchase date.