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How can one do tax harvesting in mutual funds?

Dhirendra Kumar explains the concept and its feasibility for individual investors

How can one do tax harvesting in mutual funds?
-Jagmohan Pal

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.

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