Long-term capital gains (LTCG) on equity shares and equity-oriented Mutual Fund — definition">mutual funds (those holding ≥65% in listed domestic equity) are tax-free up to ₹1.25 lakh per financial year. Gains above that threshold are taxed at 12.5% (without indexation). [2] [5]
You must aggregate all LTCG from:
- Direct equity shares
- Equity mutual funds / ETF — Exchange-Traded Fund — definition">ETFs
- Hybrid equity-oriented funds (>65% equity)
- REIT — Real Estate Investment Trust — definition">REITs/InvIT — Infrastructure Investment Trust — definition">InvITs (listed)
across all your accounts and brokers — not per fund or per broker. [2]
The exemption resets every April 1. This creates a systematic opportunity:
Redeem enough equity holdings each year to realise up to ₹1.25 lakh in LTCG — then immediately reinvest. You crystallise the gain tax-free and reset your cost basis higher.
Over 10–15 years, this "LTCG harvesting" meaningfully reduces the deferred tax liability sitting inside your portfolio. [1]
| Scenario | Tax |
|---|---|
| LTCG = ₹1.00 lakh | ₹0 |
| LTCG = ₹2.25 lakh | 12.5% × ₹1.00 lakh = ₹12,500 |
| LTCG = ₹5.00 lakh | 12.5% × ₹3.75 lakh = ₹46,875 |
For shares/units bought before 31 January 2018, the cost basis is the higher of your actual purchase price or the market price on 31 Jan 2018 (capped at the sale price). This protects pre-2018 gains from taxation. [5]
Apply this → Check your unrealised LTCG each March and model whether a partial redemption + reinvestment keeps you within the ₹1.25 lakh limit. The Goal Planner can help you model the compounding impact of consistent harvesting.