Tax Selling Season (March)
Tax Selling Season in India referred to the elevated equity selling activity that historically occurred in March — the final month of the Indian financial year (April-March) — as investors realised capital losses to offset capital gains before the fiscal year closed, a pattern distinct from the December tax-loss harvesting common in calendar-year markets.
India's financial year running April to March created a unique seasonal dynamic absent from US or European markets. The last week of March, particularly the last few trading sessions before the financial year closed, historically showed elevated selling volumes in stocks sitting at losses in retail and HNI portfolios. The objective was to crystallise capital losses before the financial year ended, so those losses could be set off against realised capital gains from other securities in the same year.
Under Indian income tax provisions, short-term capital losses could be set off against both short-term and long-term capital gains, while long-term capital losses (on equity held over 12 months, applicable post the 2018 reintroduction of LTCG tax) could be set off only against long-term capital gains. This asymmetry made March tax planning particularly active for HNI investors managing large equity portfolios with mixed gain-loss profiles.
NSE and BSE turnover data showed a pattern of elevated volumes in the last five to seven trading sessions of March, with the composition skewed toward stocks that had significantly underperformed the broader index during the year. Small-cap and mid-cap segments showed more pronounced tax-selling effects than large-caps, consistent with the lower liquidity making price impact more visible.
A corresponding effect observed in early April was a partial rebound in stocks that had been heavily sold in late March for tax purposes. This buy-back in April — sometimes called the April bounce — was evident in BSE SmallCap data across multiple years including 2016, 2017, 2019, and 2022. The magnitude varied depending on the overall market environment.
For FY2018 onwards, the reintroduction of LTCG tax on equity at 10% above Rs 1 lakh of gains per year added a new dimension. Investors with significant long-term gains began actively managing realised gains across the financial year rather than only in March, spreading tax-motivated activity more broadly. Nonetheless, March remained the most concentrated period for year-end tax activity due to the hard fiscal year boundary imposed by Indian tax law.