Learn · Tax and your investments
Using your yearly tax-free gains
The first ₹1.25 lakh of long-term equity gains each year is tax-free. Here's how people use it.
4 min read
The yearly limit
When you sell equity fund units held for more than a year, the profit is a long-term gain. Each financial year, the first ₹1.25 lakh of these gains across all your investments is tax-free. Above that, the tax is 12.5%.
Use it or lose it
The limit doesn't carry forward. If you don't sell anything this year, this year's tax-free amount is gone, and all your gains wait to be taxed later.
Example
Selling and buying back
Asha's index fund units cost ₹2 lakh three years ago and are worth ₹3 lakh now: a ₹1 lakh gain. In March she sells them and buys the same fund again for ₹3 lakh. She pays no tax because ₹1 lakh is under the limit, and her new cost is ₹3 lakh. When she sells years later, ₹1 lakh less of her gain is taxed, saving up to ₹12,500.
In order
Before you sell and buy back
- Held for over a year?Only those units count as long-term.
- Any exit load?Many funds charge one within a year of buying.
- ELSS past 3 years?Units still in the lock-in can't be sold.
- Sell by 31 MarchThat's the end of the financial year. Gains outside this app share the same limit.
- Buy backYou're out of the market for a few days in between, and prices can move.
Myth
Selling and buying back the same fund is a trick the tax department doesn't allow.
Fact
It's within the rules. The gain is real and reported in your return; it just falls under the yearly tax-free limit.
Words from this lesson
- Capital gains: The profit when you sell units for more than you paid.
- LTCG: Long-term capital gains: on equity funds held over 12 months.
- STCG: Short-term capital gains: on equity funds sold within 12 months.
- Tax harvesting: Selling and buying back to use the yearly ₹1.25 lakh tax-free limit.