Can I sell a stock at a loss, and buy back the same share immediately?

Yes. There is no mandatory waiting period before repurchase under the Income Tax Act. However, buying back resets your holding period to day one, so if you sell that new lot again within 12 months, any gain on it is taxed at the short-term rate of 20% instead of the long-term 12.5% rate.

Does tax loss harvesting apply to F&O and intraday trading losses?

F&O losses are treated as non-speculative business income and can be set off against most income heads except salary. Intraday equity losses are speculative business losses and can only be adjusted against speculative business gains, not against your capital gains from delivery-based stocks or mutual funds.

What happens if my harvested losses exceed my gains for the year?

The excess loss is not wasted. It is carried forward to future assessment years and can be adjusted against eligible gains for up to 8 assessment years.

Is there a minimum loss amount worth harvesting?

There is no legal minimum, but it is worth checking whether the tax saved exceeds the brokerage, STT and any exit load involved in selling and possibly repurchasing. For very small losses, the transaction cost can outweigh the benefit.

Can I harvest a loss in my spouse’s or family member’s demat account to offset my own gains?

No. Capital losses can only be set off against capital gains earned by the same taxpayer under the same PAN.

Do debt mutual funds qualify for tax loss harvesting the same way as equity?

Debt mutual funds bought on or after April 1, 2023, no longer get indexation or the concessional LTCG rate; gains and losses on them are taxed at your slab rate regardless of holding period.

Which ITR form do I use to report a harvested capital loss?

Individuals with capital gains or losses and no business income typically use ITR-2. If you also have F&O or intraday trading income, which is treated as business income, ITR-3 applies instead. Either way, the loss is reported under Schedule CG.

How does Tax Loss Harvesting Work

Tax Loss Harvesting: What it Means and how it Helps in Saving Tax

6 min read•Updated on 21st Oct, 2026•by Team Angel One

As an investor, you must have held at least one stock, fund, or an asset class in your portfolio that has not worked out as per the plan and eroded your capital.

Left alone, that loss just sits on paper and does nothing for you. But, if sold at the right time, this loss can reduce your capital gains tax bill in a legitimate way. That is the idea behind tax loss harvesting.

This article covers how tax loss harvesting works in India, the set-off and carry-forward rules, a worked example using current tax rates, the step-by-step process to harvest losses, and the common mistakes that can cost you the deduction.

Key Takeaways

Selling underperforming capital assets to book a realised capital loss is known as tax loss harvesting. This loss can be set off against taxable gains during a financial year.
Not many people know that short-term capital losses can be adjusted against both short-term and long-term capital gains, but long-term capital losses can only be set off against long-term capital gains.
Equity short-term capital gains (STCG) are taxed at 20%, while equity long-term capital gains (LTCG) above ₹1.25 lakh per annum are taxed at 12.5%.
Capital gains losses can be carried forward for up to 8 assessment years for adjustment against gains. This is only allowed if you file your income-tax return (ITR) before the due date.
If you decide to sell your non-performing holdings to book losses, then treat re-entry into the same as a separate and stand-alone investment decision, not as an automatic step.

What is Tax Loss Harvesting?

Tax loss harvesting is the practice of selling stocks, mutual funds, or other capital assets that are trading below your purchase price to make this loss real and usable for tax purposes.

A decline in the value of a holding is only a paper loss; it carries no tax benefit until you actually sell it. The moment you sell, that notional loss converts into a realised capital loss.

What works here is that the Income Tax Act allows you to adjust this loss against capital gains made elsewhere in your portfolio during the same financial year, or carry it forward to future years.

The result is a lower net taxable gain, and therefore a smaller tax bill, without reducing your total investible capital.

Why It Has Become More Significant After the Budget 2024 Rate Hike

Tax loss harvesting was always legal in India, but it became noticeably more valuable after the Union Budget 2024. That’s because equity capital gains tax rates were raised that year.

Short-term capital gains on listed shares and equity mutual funds, which were taxed at 15% earlier, started attracting 20% under Section 111A.

Meanwhile, long-term capital gains above the exemption limit, which earlier attracted 10%, started getting taxed at 12.5% under Section 112A, though the exemption threshold itself was raised from ₹1 lakh to ₹1.25 lakh a year.

With higher rates in play, every rupee of loss you harvest saves proportionately more tax than it did before July 2024.

Current Capital Gains Tax Rates

These are the rates that decide how much tax loss harvesting can actually save you in 2026-27:

Asset Type	Long-Term Holding Period	Short-Term Rate	Long-Term Rate
Listed equity shares (STT paid)	More than 12 months	20% (Section 111A)	12.5% above ₹1.25 lakh/year (Section 112A)
Equity-oriented mutual funds	More than 12 months	20%	12.5% above ₹1.25 lakh/year
Unlisted shares/other capital assets	More than 24 months	Taxed at slab rate	12.5% (without indexation)
Debt mutual funds (bought on/after 1 April 2023)	Not applicable	Taxed at slab rate	Taxed at slab rate

Note: These rates apply to resident individuals and exclude applicable surcharge and 4% health and education cess; real estate and gold follow separate provisions under Sections 112 and 50AA and are not covered in detail here.

Set-Off and Carry-Forward Rules for Capital Losses

Not every loss can be adjusted against every gain. The Income Tax Act sets a clear order under Sections 70 and 74, and getting this wrong is one of the most common harvesting mistakes.

Loss Type	Can Be Set Off Against	Carry-Forward Period
Short-Term Capital Loss (STCL)	Both STCG and LTCG	8 assessment years
Long-Term Capital Loss (LTCL)	LTCG only	8 assessment years

Flexibility: A short-term capital loss is the more flexible of the two, since it can wipe out both STCG and LTCG in the same year.

Restriction: A long-term capital loss can only reduce long-term capital gains; it cannot offset STCG or income from salary, business, or interest.

Filing deadline: Losses that remain unabsorbed carry forward for 8 assessment years, but only if the return is filed on or before the due date under Section 139(1). If you miss that date, the right to carry the loss forward is lost, even though the loss itself is genuine.

Trading income: Futures and options losses, treated as non-speculative business income, can be set off against most other income heads except salary. Intraday (speculative) losses can only be set off against speculative gains, not against your delivery-based capital gains.

Step-By-Step Guide to Harvesting Losses Before March 31

Harvesting is simple in concept but easy to get wrong in execution. Remember this sequence for following the correct procedure:

Step 1: Review Your Portfolio for Unrealised Losses

Pull up your holdings statement or your broker’s capital gains report and list every stock, ETF, or mutual fund unit currently valued below its purchase price. Most trading platforms display this as an unrealised profit-and-loss column.

Step 2: Classify Each Loss as Short-Term or Long-Term

Check the purchase date against today's date. Listed equity held for 12 months or less is short-term; beyond that, it is long-term. This classification decides exactly what the loss can be set off against.

Step 3: Match Losses Against This Year’s Gains

Look at the realised gains already booked in the financial year and work out how much loss you actually need to harvest. There is little benefit in booking far more loss than you have gains to absorb, beyond a reasonable buffer for carry-forward.

Step 4: Sell Within the Settlement Window

Indian equity markets settle on a T+1 basis. To ensure the trade reflects in the correct financial year, complete your sale a few working days before March 31, allowing for weekends and market holidays.

Step 5: Decide on Re-Entry Separately

If you still believe in the stock or fund, you can buy it back after selling. Treat this as a fresh investment decision, not an automatic next step. An immediate repurchase resets your holding period, and if that new position turns short-term again, any future gain on it is taxed at the higher 20% rate instead of 12.5%.

Step 6: Report the Loss Correctly in Your ITR

Capital gains and losses are reported under Schedule CG of ITR-2 or ITR-3. File before the due date so the loss remains eligible to carry forward, and keep your contract notes or capital gains statement as supporting proof.

Example of Tax Loss Harvesting at Current Tax Rates

Here are two quick scenarios that show how much a harvested loss can actually save at rates as of March 2026.

Short-Term Capital Gains

Assume an investor has already booked ₹80,000 in short-term capital gains this year and is holding a stock down ₹40,000 from its purchase price.

Particulars	Without Harvesting	With Harvesting
STCG for the year	₹80,000	₹80,000
STCL booked	Nil	₹40,000
Net taxable STCG	₹80,000	₹40,000
Tax @ 20%	₹16,000	₹8,000

By selling the loss-making stock, the investor cuts the tax bill by ₹8,000, without changing the total amount invested.

Long-Term Capital Gains

Now assume the same investor has ₹2 lakh in long-term capital gains this year and a separate holding showing a long-term loss of ₹1 lakh.

Particulars	Without Harvesting	With Harvesting
LTCG for the year	₹2 lakh	₹2 lakh
LTCL booked	Nil	₹1 lakh
Net LTCG	₹2 lakh	₹1 lakh
Less: exemption	₹1.25 lakh	Fully exempt (below ₹1.25 lakh)
Taxable LTCG	₹75,000	Nil
Tax @ 12.5%	₹9,375	Nil

Harvesting the loss here brings the net LTCG below the ₹1.25 lakh exemption threshold, wiping out the tax entirely instead of merely reducing it.

Benefits of Tax Loss Harvesting

Lowers the tax outgo on gains already booked in the financial year, improving post-tax returns.
Converts a dead and underperforming position into an active tax-saving tool.
Works across both STCG and LTCG, depending on which type of loss you book.
Unabsorbed loss is not wasted; it carries forward for 8 assessment years.
Forces a periodic portfolio review, which often uncovers positions worth exiting anyway.

Risks and Mistakes to Watch out For

Buying back too soon: Repurchasing a long-term holding restarts the clock. If sold again within 12 months, gains attract the higher 20% short-term rate instead of 12.5%.
Getting the set-off order wrong: Assuming a long-term loss can reduce short-term gains can turn out to be a costly error.
Missing the ITR deadline: Filing ITRs late forfeits the right to carry forward unabsorbed losses.
Selling purely for tax reasons: A fundamentally sound stock sold only to book a loss and bought back immediately adds transaction cost and STT with little real economic substance, and can invite scrutiny if it looks like a purely tax-motivated round trip.
Ignoring transaction costs: Brokerage, STT, and mutual fund exit loads can eat into the benefit on very small loss amounts, so harvesting is worthwhile only once the tax saved comfortably exceeds these costs.

Tax Loss Harvesting for Mutual Funds and SIPs

Mutual fund investors, especially those investing through monthly systematic investment plans (SIPs), hold multiple lots of the same fund bought at different net asset values (NAVs).

When you redeem, tax law applies the First-In-First-Out method. This means that the oldest units are treated as sold first. This matters when harvesting, since only specific lots may show a loss while others show a gain.

You need to review your capital gains statement lot-wise rather than looking at the overall fund position, which can hide a genuine loss within an otherwise profitable SIP.

One more distinction is essential: debt mutual funds purchased on or after April 1, 2023, lost their indexation and LTCG benefit altogether and are now taxed entirely at your income tax slab rate. So the STCG/LTCG harvesting math above does not apply to them in the same way.

Conclusion

Tax loss harvesting is a legal use of provisions under the Income Tax Act that, if used well, lowers the tax you pay on real gains. It also tidies up a portfolio of underperforming positions and keeps unabsorbed losses available for up to 8 more years. However, if used carelessly, it can misclassify losses or trigger fresh short-term tax on a hasty repurchase. Review your holdings early, apply the set-off rules correctly, and file your return on time to make the strategy count.