The ₹15,625 Tax Secret Every Indian Parent is Missing: How to Get Your Long-Term Gains for Free
💔 Emotional Validation: The Invisible Burden of the Tax Season
If you’ve ever felt that sharp, sinking feeling when you realize your hard-earned profits from a long-term investment are about to be sliced by LTCG (Long-Term Capital Gains) tax, you are not alone.
For a family, every rupee saved is a brick laid for your child’s future—whether it’s the escalating university fee or the cost of a future wedding. Paying a lump sum tax after years of patient investing doesn’t just hurt the wallet; it feels like a genuine sacrifice of that future.
But what if I told you there’s a simple, legal financial manoeuvre that lets you “harvest” a significant portion of those gains every single year, tax-free, and keeps you invested?
This strategy is called Tax Harvesting, and it’s the ultimate secret weapon for the 20-year family plan.
💡 Myth vs. Reality: The FD Mindset is Costing You Big
| The Old, Safe Belief (FD/Gold) | The Modern, Smart Reality
(Tax Harvesting) |
| “I’ll sell everything when I need it in 20 years, and pay the tax then.” | You pay tax on 100% of the gain above the limit. You lose a huge, lump sum chunk when you need the money most. |
| “It’s too complicated. I’ll stick to fixed deposits.” | FDs are secretly making you lose money. Inflation eats the return, and the interest is taxed at your slab rate (up to 30%+). |
| “I only have one demat account, so I can only use one exemption.” | Wrong! You can use the ₹1.25 Lakh exemption limit for every member of your family who files an ITR. |
🧑🤝🧑 The Anecdote: Meet Mr. and Mrs. Sharma’s Tax Mistake
Meet Mr. Suresh Sharma from Dwarka, a 45-year-old manager whose biggest goal is his daughter, Priya’s, medical college education.
Suresh started a monthly SIP 10 years ago. Today, his equity mutual fund portfolio is worth ₹20 lakhs, with a total profit (gain) of ₹15 lakhs. He plans to sell it all in 5 years.
Suresh’s Mistake: If he waits 5 years and sells it all at once (assuming gains hit ₹25 Lakhs), he will pay LTCG tax on roughly ₹23.75 Lakhs (Total Gain – ₹1.25 Lakh exemption). The tax bill would be enormous.
The Smart Move (Mrs. Sharma’s Plan): Suresh could have harvested ₹1.25 Lakhs in tax-free gains every year for the past 10 years! That’s 10 times of 1.25 Lakhs = ₹12.5 Lakhs of tax-free profit he left on the table.
This is the power of utilizing the ₹1.25 Lakh annual LTCG exemption for equity and equity-oriented mutual funds.
📈 LTCG Tax Harvesting India: A Strategic Approach for Families
👨👩👧👦 The Family Strategy: How to Save ₹15,625 x 3 Every Year
The magic is that every individual who is a resident of India and files an Income Tax Return is entitled to the annual LTCG exemption (currently ₹1.25 Lakh for equity/equity MF gains).
If you are a 3-member family (Spouse A, Spouse B, and a major child), you can collectively book (3 times of ₹1.25 Lakhs) = ₹3.75 Lakhs in tax-free gains every single year!
| Family Member | Annual Tax-Free Gain Limit | Estimated Annual Tax Saved (@12.5%) |
| Spouse 1 (Primary Earner) | ₹1.25 Lakh | ₹15,625 |
| Spouse 2 (ITR Filer) | ₹1.25 Lakh | ₹15,625 |
| Major Child (Starting to Earn/File) | ₹1.25 Lakh | ₹15,625 |
| Total Annual Tax-Free Gain | ₹3.75 Lakhs | ₹46,875 |
Over 20 years, this tax-free harvesting, when consistently re-invested, can add a massive ( could be 50Lakh ++), compounding advantage to your portfolio!
✅ Ultra-Specific, Actionable Tip: The 3-Step Harvest
You don’t need to exit the market. You simply sell and buy back the same fund units to “reset” your purchase price and lock in the tax-free gain.
Monitor Your Gain: Towards the end of the financial year (Feb/Mar), check your equity/MF portfolio. Identify units held for more than 1 year where the current profit is close to (but not over) ₹1.25 Lakh.
Sell to Realise: Sell those specific units. Since the gain is under ₹1.25 Lakh, the Long-Term Capital Gain is ₹0. You have legally booked a profit without paying tax.
Buy Back Immediately: On the same day or the next day, use the entire sale amount to buy back the exact same units of the exact same fund.
The Result: You have reset your ‘Cost of Acquisition’ to the higher current NAV. This means when you sell for your daughter’s college fee in 20 years, your future taxable gain will be much, much lower! You saved the tax, and you stayed invested!
Pro Tip: It is advisable to confirm that investments being liquidated for a spouse or child are derived from a Gift Deed. This allows for clear separation of funds and ensures the clubbing provisions of the Income Tax Act do not apply, thereby validating their individual eligibility for LTCG exemption.
Stop paying unnecessary tax on your life goals. Start harvesting today and ensure your sacrifice truly compounds for your family’s future.