Investors have the option to set off their equity-related losses against other capital gains to reduce their tax liability, but the rules governing how different types of capital losses can be adjusted are not always straightforward.
Hence, taxpayers may have a common confusion: whether losses incurred from equity investments can be set off against gains from other assets such as property, and debt mutual funds.
The answer depends on several factors, including the nature of the loss, the type of capital gain involved and the specific provisions of the income tax law. Here’s what investors can do to reduce their tax burden by using the provision.
Can equity losses be set off against gains from other assets?
Yes, equity capital losses can help reduce the tax burden on gains from other capital assets, such as gold, sale of property and , provided the gains are taxable under the head ‘capital gains’. However, the ability to set off losses depends on whether the loss is short-term or long-term.
Short-term capital losses can be adjusted against both short-term and long-term capital gains, while long-term capital losses can only be set off against long-term capital gains, according to income tax rules.
The rules also stated that equity capital losses cannot be adjusted against income from salary, house property rent, business or profession. Similarly, losses arising under the head ‘capital gains’ cannot be set off against speculative business income such as profits from intraday trading.
If the losses are not fully utilised in a specific financial year, they can be carried forward for up to eight assessment years. These carried-forward losses can then be used to offset future capital gains, subject to applicable laws.
Investors can carry forward stock market losses for up to 8 years. This rule applies to both short-term and long-term capital losses. However, the conditions for carry forward and set-off shall remain the same for all these years, meaning carried-forward long-term losses can be used to offset only long-term gains in subsequent years.
You may lose this benefit if you fail to do this
Capital losses can be carried forward only if the taxpayer files the income tax return within the prescribed due date. For non-audit cases, the deadline to file ITR is 31 July 2026.
“Even if your total income is below the taxable limit, filing the on or before the due date is important if you wish to carry forward capital losses and set them off against eligible gains in future years,” said Siddharth Maurya, Founder & Managing Director of Vibhavangal Anukulakara Private Limited.
Losses need to be recorded whenever the ITR is filed, in order to make them available for reductions in the taxable income of successive years. Losses need to be recorded within the due date
The tax department treats a return filed within the prescribed due date as the taxpayer’s formal declaration of the loss. If the return is filed late, capital losses generally cannot be carried forward and set off against future capital gains. As a result, taxpayers may lose the opportunity to use those losses to reduce their tax liability in subsequent years.