Tax harvesting (specifically tax-loss harvesting) is a strategy where an investor deliberately sells investments that are sitting at a loss to realise those losses and use them to offset capital gains made elsewhere in the portfolio, thereby reducing the overall tax liability for the financial year. In India, short-term capital losses can be set off against both short-term and long-term capital gains, while long-term capital losses can only be set off against long-term capital gains. After booking the loss, the investor can repurchase the same or a similar investment to maintain their desired market exposure. Tax harvesting is particularly effective toward the end of the Indian financial year in March.
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