Tax Harvesting for NRIs 2026

A Complete Guide to Reducing Taxes Legally (With Indian Mutual Fund Examples)

Taxes are one of the few guaranteed drags on investment returns. While markets are uncertain, tax rules are predictable — which is why investors globally use tax harvesting to improve post-tax outcomes.

For NRIs investing in Indian mutual funds, tax harvesting is especially powerful because:

• India has no wash-sale rule

• Same-day reinvestment is allowed

• Capital gains exemptions can be used strategically

• Losses can be carried forward for years

This guide explains tax harvesting for NRIs in depth, answers the most common doubts, and shows how to execute it correctly without violating rules.

What Is Tax Harvesting?

Tax harvesting is the deliberate realisation of:

• Capital gains, or

• Capital losses

to:

• Reduce current tax liability

• Reset cost bases

• Improve long-term compounding
  without changing your long-term investment strategy.

It is legal, widely used, and explicitly allowed under Indian tax law.

The Most Asked Question First

Do You Need to Wait Before Reinvesting?

India: No Waiting Period Required

India does not have a wash-sale rule.

This means:

• You can sell and reinvest on the same day

• You can reinvest in the same mutual fund

• You do not need to wait 30 days

As long as:

• Transactions are genuine

• NAV-based execution occurs normally

• Capital gains/losses are reported correctly

👉 This makes tax harvesting much easier in India than in many developed countries.

Global Context (Why NRIs Get Confused)

NRIs often assume US/Canada rules apply in India — they don’t.

Two Types of Tax Harvesting

1️⃣ Gain Harvesting

2️⃣ Loss Harvesting

Both are important and can be used together.

1️⃣ Gain Harvesting (India-Specific Advantage)

Gain harvesting means:

• Realising gains when tax rates are low or exempt

• Reinvesting immediately to stay invested

Indian Equity Mutual Fund Rules

• LTCG (>12 months): 12.5%

• First ₹1.25 lakh LTCG per year is tax-free

Example: Gain Harvesting

Situation

• Unrealised LTCG: ₹5,00,000

If sold at once:

• Taxable LTCG = ₹3,75,000

• Tax ≈ ₹46,875

Tax Harvesting Strategy

• Sell units to realise ₹1.25 lakh LTCG this year

• Reinvest immediately (same fund or similar)

Result

• Zero LTCG tax

• Higher cost base

• Same market exposure

This can be repeated every financial year.

2️⃣ Loss Harvesting (Often Ignored, Very Powerful)

Loss harvesting involves:

• Booking losses intentionally

• Using them to offset current or future gains

Example: Loss Harvesting

Portfolio

• Fund A: +₹4,00,000 LTCG

• Fund B: −₹1,50,000 unrealised loss

Without harvesting:

• Taxable LTCG = ₹4,00,000

• Tax ≈ ₹50,000

With harvesting:

• Book ₹1,50,000 loss

• Net LTCG = ₹2,50,000

• Tax ≈ ₹31,250

Tax saved: ~₹18,750
Unused losses can be carried forward for 8 years.

STCG / LTCG / STCL / LTCL Set-Off Rules

(Critical for Correct Tax Harvesting)

Understanding what can offset what is essential.

Definitions

• STCG: Short-term capital gain

• LTCG: Long-term capital gain

• STCL: Short-term capital loss

• LTCL: Long-term capital loss

Set-Off Rules (India)

Short-Term Capital Loss (STCL)

✔ Can be set off against:

• STCG

• LTCG

👉 Most flexible loss type

Long-Term Capital Loss (LTCL)

✔ Can be set off only against:

• LTCG

❌ Cannot offset STCG

Carry-Forward Rules

• Losses can be carried forward for 8 financial years

• Allowed only if ITR is filed on time

Practical Set-Off Examples

Example 1: STCL Efficiency

• STCG: ₹2,00,000

• STCL: ₹1,50,000
  → Net taxable STCG = ₹50,000

Example 2: LTCL Limitation

• STCG: ₹2,00,000

• LTCL: ₹2,00,000
  → ❌ No set-off allowed

Example 3: Optimal Mix

• LTCG: ₹4,00,000

• LTCL: ₹1,00,000

• STCL: ₹1,50,000

Set-off:

• LTCG – LTCL = ₹3,00,000

• Remaining LTCG – STCL = ₹1,50,000

Can You Reinvest in the Same Fund?

Yes — in India

You may:

• Sell and buy the same mutual fund

• Reinvest same day or next day

• Continue SIPs uninterrupted

There is no statutory restriction preventing this.

NRI-Specific Nuances

Tax Residency Still Matters

• Indian rules apply for Indian taxation

• Your country of residence may still tax the transaction

Examples:

• US NRIs: PFIC rules apply

• Canada NRIs: Annual taxation + reporting

Harvest only after viewing both tax lenses.

TDS Does Not Replace Harvesting

• TDS is deducted on redemption

• Harvesting reduces final tax liability

• Excess TDS can be reclaimed via ITR

Transaction Costs Matter

Harvesting works best when:

• No brokerage (SOA / direct MF)

• No exit loads

• Clean NAV execution

This is why SOA mode > Demat mode for harvesting.

Common NRI Mistakes

• Assuming a 30-day wait is required

• Ignoring STCL flexibility

• Forgetting to file ITR (losing carry-forward)

• Harvesting without foreign tax awareness

• Letting TDS dictate decisions

Year-End Tax Harvesting Checklist for NRIs (India)

Portfolio Review

• List equity mutual funds

• Separate ST vs LT holdings

• Identify unrealised gains & losses

Gain Harvesting

• Calculate unused ₹1.25L LTCG exemption

• Sell units within limit

• Reinvest same day or next day

Loss Harvesting

• Identify STCL vs LTCL

• Harvest STCL first where possible

• Track carry-forward eligibility

Compliance

• Check exit loads

• Save capital gains statements

• File Indian ITR on time

• Track foreign reporting obligations

Final Takeaway

Tax harvesting is not market timing.
It is tax timing.

For NRIs investing in Indian mutual funds:

• No wash-sale rule

• Same-day reinvestment allowed

• Clear capital gains framework

• Powerful post-tax compounding advantage

Used correctly, tax harvesting adds real alpha without extra risk.