Tax Harvesting for FY26: March 31 Deadline, Set-Off Rules, and Exemption Limits Explained

Tax harvesting for the fiscal year 2025-26 needs to be wrapped up by March 31, 2026. The transactions that have been executed during the financial year only will be considered for tax set-off as per the Income Tax Act, 1961. Investors typically sell certain holdings before the financial year ends so that gains or losses can be accounted for in the same year.

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Set-Off Rules For Capital Gains

The law specifies how different types of losses can be adjusted. Long-term capital losses can be set off only against long-term gains. Short-term losses, however, can be used against both short-term and long-term gains.

As per current tax rules, long-term capital gains from equity above ₹1.25 lakh are taxed at 12.5%, while short-term gains are taxed at 20%.

Unadjusted losses can be carried forward for up to eight assessment years. This benefit applies only if the income tax return is filed within the prescribed deadline.

Difference Between Loss And Gain Harvesting

Two approaches are commonly used during this period. In tax loss harvesting, the investor sells those investments that are trading lower than the cost of purchase. In tax gain harvesting, the long-term investments are sold to realise the gain within the ₹1.25 lakh exemption limit provided under Section 112A of the I-T Act.

The amount realsed can be reinvested to keep the investors invested and also realise the gain within the exemption limit.

Filing Requirement And Documentation

Carrying forward losses or set-offs requires the timely filing of the return. According to the Income Tax Department's rules, if the filing of the return is delayed, the losses cannot be carried forward.

The accurate disclosure of purchase price, sale price, and holding period is required for determining tax liability.
Deadline Determines Tax Treatment Any transaction executed after March 31, 2026, will be considered in the subsequent financial year and will not be taken into account for adjustments in FY26.

The handling of gains, losses, and exemptions is subject to the execution and observance of the Income-tax Act, 1961. The data entered in the income tax return is what will determine what part of the gains is liable to tax and what part of the loss can be offset.