Dhirendra Kumar explains the concept and its feasibility for individual investors
How can one do tax harvesting in mutual funds?
Let me first explain what tax harvesting is. Till 2018, long-term capital gains on equity were tax-free. They were made taxable in the Union Budget 2018 but with an exemption. And the exemption is that long-term capital gains on equity worth Rs 1 lakh in a financial year are tax exempt.
So if you have invested and your gain is up to Rs 1 lakh, you can sell your investment, realise that gain and invest it back without being liable to pay taxes. Over a period, you will be generating tax-exempt gains from your investment. So, it is a mechanism of harvesting the gains to the extent they are exempt.
But I would say, don't bother too much about it. If you are going to invest for 15-20 years, you might think that it's a meaningful activity, but you would be actually saving just Rs 10,000 on the gains of Rs 1 lakh. And for this, you will be taking a lot of headache.
However, if you don't mind doing this exercise for just Rs 10,000, go ahead. The 'My Investments' tracker on Value Research gives a nice split of your investments long and short-term gains. You can use it for this purpose.