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Capital Gains — Investor Playbook

SWP Taxation + Tax Harvesting: Book ₹1.25L Gains Tax-Free Every Year

Every SWP payout = an MF redemption (FIFO, STCG/LTCG split). Harvesting = booking gains up to the ₹1.25L/year equity shield deliberately. Loss harvesting = setting STCL/LTCL against gains before 31 March.

SWP: how each payout is taxed

Equity-fund SWP: units held >12 months → LTCG 12.5% above ₹1.25L; ≤12 months → 20% STCG — computed FIFO per instalment. Your fund's capital-gains statement splits it; report head-wise in ITR-2. Debt-fund SWP (post-Apr-2023 units): everything at slab.

Example — ₹2L equity LTCG harvested in March
Arjun sells equity units with ₹2,00,000 LTCG and rebuys similar units next week (step-up!). Exempt ₹1,25,000; tax = 12.5% × ₹75,000 + cess = ₹9,750 — and his cost base rises by ₹2L, shrinking future tax.

Harvesting rules (March ritual)

  • Gain harvest: book equity LTCG up to ₹1.25L every FY — free money the shield gives you. Rebuy after a gap to step up cost.
  • Loss harvest: STCL sets off STCG and LTCG; LTCL only vs LTCG. Unused losses carry 8 years (file on time!).
  • Advance tax: big March gains? Pay in the remaining instalment — capital-gains shortfalls are excused if caught up next quarter.
  • Wash-sale: India has no wash-sale ban — rebuying quickly is legal (unlike the US).
MF rates master → · Advance-tax quarters →
🤔 Unpopular opinion: SWP beats dividends for regular income
Since DDT ended, dividends are taxed at YOUR slab (30% for top earners!) while SWP gains get the gentler capital-gains treatment — plus the ₹1.25L yearly LTCG exemption. A retiree drawing ₹40,000/month via SWP from long-held equity funds often pays a fraction of the dividend-route tax. Set the SWP after 12 months of each SIP installment, withdraw oldest-first, and harvest gains to the exemption limit every March.

By TaxSetu Editorial Team · Last reviewed: 7 October 2026

Based on the Income-tax Act 2025, Income Tax Rules 2026 and CBDT notifications; sections per the Income-tax Act 1961 (as amended) with 2025-Act mappings where notified · Verify on the official portal: incometax.gov.in

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Frequently Asked Questions

Each payout is an MF redemption taxed FIFO: equity units over 12 months face 12.5% LTCG above ₹1.25L; under 12 months face 20% STCG. MF rates.

Booking losses before 31 March to set off gains: STCL offsets STCG and LTCG; LTCL offsets only LTCG. Unused losses carry 8 years if you file on time.

Yes — the equity LTCG shield resets yearly, so harvesting up to ₹1.25L and rebuying steps up your cost base tax-free.

Yes — India has no wash-sale ban, unlike the US.