Tax Loss Harvesting is a strategy where you sell investments that are in loss to reduce your overall tax liability.
Simple Definition
Tax loss harvesting means using your investment losses to offset your gains, so you pay less tax.
How It Works
When you invest in stocks, mutual funds, or crypto:
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Some investments make profit (capital gains) → taxable
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Some make loss (capital losses) → can reduce tax
You can adjust losses against gains, which lowers your taxable income.
Example
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Profit from Stock A = ₹50,000
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Loss from Stock B = ₹20,000
Tax is calculated only on:
- ₹50,000 – ₹20,000 = ₹30,000
So, you save tax on ₹20,000 
Rules in India (Important)
1. Types of Capital Gains
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Short-Term Capital Gain (STCG)
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Long-Term Capital Gain (LTCG)
2. Set-off Rules
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Short-term losses → can offset both STCG & LTCG
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Long-term losses → can offset only LTCG
3. Carry Forward Losses
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You can carry forward losses for up to 8 years
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Must file ITR on time to claim this
How to Save Tax Using Losses
Step-by-step strategy
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Review your portfolio before financial year ends (March 31)
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Identify investments in loss
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Sell those investments to “book” the loss
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Offset against your gains
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(Optional) Reinvest in similar assets to stay invested
Things to Keep in Mind
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Don’t sell just for tax saving if the investment is fundamentally strong
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Watch out for transaction costs & market timing
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Avoid “wash sale” type behavior (not strictly defined in India yet, but risky if abused)