How to harvest the ₹1.25L LTCG exemption for every client — every year
The Finance Act 2024 raised the equity LTCG exemption to ₹1.25 lakh per financial year (from ₹1 lakh). Gains on equity mutual fund units held for more than 12 months are taxed at 12.5% above this threshold. Below it, they are tax-free.
Most RIAs know this. Fewer systematically apply it to every client before 31 March each year. The reason is operational: tracking unrealised gains across 20–40 client portfolios in a spreadsheet is tedious enough that it gets done for some clients and skipped for others.
The mechanics
LTCG harvest works as follows. Before financial year-end, you identify units where the long-term unrealised gain is below ₹1.25L, redeem them (realising the gain tax-free or at zero marginal cost within the exemption), and immediately buy back the same fund. The cost basis resets to the current NAV. Over time, this compounds: each year's harvest reduces the eventual taxable gain when the client actually exits.
The constraint: the redemption and re-purchase need to clear before 31 March. For most equity MF schemes, redemption settles T+2 and re-purchase also T+2. So the latest practical date to initiate is approximately 27 March.
What the tax scan computes
For each client whose CAS is imported, the tax scanner computes: (a) LTCG already realised this FY from prior redemptions, (b) unrealised LTCG on each holding from units held >12 months, (c) remaining exemption headroom = ₹1.25L minus already-realised LTCG, and (d) which holdings, if redeemed up to the headroom, would result in zero additional tax liability.
ELSS units held less than 3 years are excluded (lock-in). Units purchased within 12 months are STCG, not eligible for the LTCG exemption. Debt fund gains are taxed at income-slab rate regardless of holding period (post-April 2023 rules).
Running this for 25 clients
With multi-client mode, you import each client's CAS, then run the tax scan for each from the client detail page. The scan flags how much LTCG exemption remains unused, lists the specific holdings where harvest is possible, and shows the tax saving (in rupees) if the harvest is completed before FY-end.
The output is data — it tells you the amounts and identifies the holdings. The decision to redeem and re-purchase, and the execution on your client's behalf, remains your responsibility as the registered adviser.
A note on timing
Set a calendar reminder for the second week of March. At that point you have roughly three weeks to work through your client list, confirm each harvest with the client, execute redemptions, and confirm re-purchase. Doing this in February is better — NAV can move between initiation and settlement, and late-March markets are sometimes volatile around budget-related news.
Informational only — not tax advice. Tax computations are based on CAS data imported by the user and may not reflect all transactions. Verify all figures independently before acting. Flirting with Finance is not a SEBI-registered Investment Adviser or Research Analyst. Consult a qualified CA or tax adviser for your specific situation.