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Capital Gain Loss Set Off
A Simple Tax-Saving Guide for Indian Investors
Understand how eligible capital losses can be adjusted against capital gains, when unused losses may be carried forward, and why correct reporting in your ITR matters.
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Let's be honest — losing money on an investment stings. Whether it's shares that dropped or a property deal that didn't go as planned, it hurts to see your savings shrink.
But an eligible capital loss may still have value at tax time. Indian income-tax rules allow certain capital losses to be adjusted against eligible capital gains, which can reduce the amount of gain that remains taxable.
What Does Capital Gain Loss Set Off Mean?
In simple terms, capital gain loss set off means adjusting an eligible capital loss against an eligible capital gain. Instead of calculating tax as though the loss never happened, the applicable gain is reduced by the loss that tax law allows you to set off.
A short-term capital loss can generally be set off against both short-term and long-term capital gains.
A long-term capital loss can generally be set off only against long-term capital gains.
See How Set Off Changes the Taxable Gain
Suppose you make a ₹1,00,000 capital gain from one investment and incur a ₹40,000 capital loss from another investment in the same year.
If the ₹40,000 loss is eligible to be adjusted against that particular gain, the remaining capital gain becomes ₹60,000 before applying the relevant tax provisions.
Many investors overlook capital-loss reporting because the rules are rarely explained in plain language. That can matter not only in the year of the loss, but also in future years if an eligible loss can be carried forward.
This guide is designed to make those rules easier to understand without turning them into complicated tax jargon.
By the End of This Guide, You'll Know:
- Exactly which capital losses can be adjusted against which capital gains — and where set off is not allowed.
- The current capital-gains tax framework and relevant holding-period rules so you can understand the tax impact correctly.
- How eligible unused capital losses can generally be carried forward for up to 8 years for future set off.
- Practical rupee examples showing how loss set off can change the capital gain that remains taxable.
- Common reporting and filing mistakes that can affect your ability to use a capital loss in the current or future years.
- Why correctly reporting both short-term and long-term capital losses matters even when you have little or no capital gain today.
An eligible unadjusted capital loss can generally be carried forward for up to eight years. To preserve the carry-forward benefit, the loss return generally needs to be filed within the applicable due date, subject to the tax rules that apply to your case.
No complicated legal language. No unnecessary jargon. Just clear, practical information to help you understand how capital losses, capital gains, set off and carry forward work when you prepare your Income Tax Return.
First, Let's Talk About What a Capital Asset Actually Is
Before we get into the set-off rules, it helps to be clear on what counts as a capital asset in the first place.
Under current Indian income-tax law, the meaning of a capital asset is broad. It generally covers property of almost any kind held by you, whether or not it is connected with a business or profession, subject to specific exclusions.
A capital asset can include investments, securities, property and other valuable assets that may give rise to a capital gain or capital loss when transferred.
Common Types of Capital Assets
What Is Generally Not Treated as a Capital Asset?
- Personal effects such as clothes, furniture and a car held mainly for your or your dependent family's personal use.
- Rural agricultural land in India where the land satisfies the prescribed location and population conditions.
- Stock-in-trade, consumable stores or raw materials held for the purposes of your business or profession.
How Do You Calculate a Capital Gain or Loss?
At a basic level, the calculation compares what you receive from the transfer with the allowable cost of the asset and eligible expenses connected with that transfer.
Rahul's Share Sale
Rahul bought shares for ₹50,000. Later, he sold them for ₹45,000 and paid ₹500 in eligible brokerage charges related to the sale.
The negative ₹5,500 is a capital loss. But whether Rahul can adjust it against another gain depends on whether this loss is classified as short-term or long-term.
Indexation uses the Cost Inflation Index (CII) to adjust an asset's cost for inflation. However, it is no longer a general benefit for long-term capital assets transferred on or after 23 July 2024. Limited transitional relief can still apply in certain cases involving land or buildings acquired before 23 July 2024 by resident individuals or HUFs. Therefore, do not automatically apply indexation to every capital asset.
Short-Term vs. Long-Term: Why the Time You Hold an Asset Matters
The period for which you hold an asset can directly affect how the resulting gain is taxed and which capital losses can be adjusted against that gain.
A capital asset is generally classified as short-term or long-term according to its applicable holding period. The required period varies by asset, and some investments are subject to special tax rules.
| Asset Type | Short-Term | Long-Term |
|---|---|---|
| Listed equity shares | Up to 12 months | More than 12 months |
| Equity-oriented mutual fund units | Up to 12 months | More than 12 months |
| Listed bonds, debentures and other securities | Up to 12 months | Generally more than 12 months; specified instruments may be deemed short-term regardless of the holding period. |
| Immovable property — land or building | Up to 24 months | More than 24 months |
| Gold, silver and jewellery | Up to 24 months | More than 24 months |
| Unlisted shares | Up to 24 months | More than 24 months |
| Unlisted bonds and debentures covered by special rules | Deemed short-term | Normal long-term classification does not apply to specified transfers. |
| Other capital assets not covered by a special rule | Up to 24 months | More than 24 months |
Suppose you purchased listed equity shares in January 2024 and sold them in October 2024. Since they were held for no more than 12 months, the resulting gain or loss would generally be short-term.
If those shares were instead sold in February 2025, the holding period would generally exceed 12 months and the shares would qualify as a long-term capital asset.
The holding-period classification affects the relevant tax treatment and the way eligible capital losses may be adjusted.
Listed Equity Shares: Holding Period, STT and Capital Loss Adjustment
Investors who buy and sell listed equity shares should understand how the holding period, Securities Transaction Tax (STT) and applicable capital gains tax rates affect their final tax liability.
For eligible listed equity share transactions, the prescribed STT conditions can determine whether special capital gains tax provisions apply. Short-term gains and long-term gains may therefore receive different tax treatment.
Eligible capital losses must also be classified correctly. Short-term capital losses can generally be set off against eligible short-term or long-term capital gains, whereas long-term capital losses can generally be set off only against long-term capital gains.
For a detailed explanation with practical examples, read our guide on short-term capital gain tax on shares in India. It also explains how eligible capital losses may be adjusted against share-related capital gains.
A Special Note on Debt Mutual Funds
Debt-oriented mutual funds need separate attention because the special provisions for specified mutual funds can override the normal holding-period test.
Where the fund falls within the applicable definition of a specified mutual fund, gains can be deemed short-term regardless of the actual holding period.
These units are not covered by the same acquisition-date deeming rule. Their treatment depends on the applicable holding-period and transitional provisions.
Under the applicable framework from April 2026, the specified mutual fund definition broadly covers funds investing more than 65% in debt and money-market instruments, and certain qualifying fund-of-funds.
Always review the acquisition date, fund classification and relevant tax-year rules before computing gains on debt mutual fund units.
Capital Gains Tax Rates After Budget 2024
The Finance (No. 2) Act, 2024 introduced important changes to capital gains taxation for transfers taking place on or after 23 July 2024.
These changes included revised special tax rates for eligible equity transactions and adjustments to the treatment of many other capital assets.
For a wider explanation of share-market transactions, read our guide on how equity trading is taxed.
| Type of Capital Gain | Applicable Rate | Important Condition |
|---|---|---|
| STCG under Section 111A — eligible equity shares, equity-oriented fund units and business-trust units | 20% | For qualifying transfers on or after 23 July 2024, subject to prescribed STT requirements. |
| Other short-term capital gains | Applicable normal rate | Generally taxed according to the taxpayer's applicable rates unless a special provision applies. |
| LTCG under Section 112A — qualifying equity shares, equity-oriented fund units and business-trust units | 12.5% | On aggregate qualifying long-term gains exceeding ₹1.25 lakh in the relevant financial year, for qualifying transfers on or after 23 July 2024. |
| Most other long-term capital gains | 12.5% | Generally without indexation for transfers on or after 23 July 2024, subject to specific exceptions and transitional relief. |
What About Indexation?
Indexation adjusts the acquisition cost of an asset for inflation using the government's Cost Inflation Index.
For long-term capital assets transferred on or after 23 July 2024, indexation has generally been removed. However, qualifying land and buildings may receive transitional protection.
For eligible resident individuals and resident HUFs, this transitional provision may protect against a higher tax liability on specified land or building transfers.
So What Exactly Is Capital Gain Loss Set Off?
Now let's get into the heart of this guide.
Capital loss set off means using an eligible capital loss from one investment or asset to reduce an eligible capital gain from another. The loss reduces the amount of capital gain that remains taxable before tax is calculated at the applicable rate.
Set off first happens within the same financial year. If you have capital gains and eligible capital losses during that year, the law allows those losses to be adjusted according to the short-term and long-term rules explained below.
Simple idea: you do not ignore an eligible investment loss while calculating capital gains. You first apply the permitted set-off rules, and tax is then calculated on the capital gains that remain.
Intra-Head Set Off
Intra-head set off means adjusting a loss from one source against income from another source that falls under the same head of income.
For capital gains, this means using an eligible capital loss against capital gains, subject to the separate rules for short-term and long-term losses.
Inter-Head Set Off
Inter-head set off means using a loss under one head of income against income falling under another head, where the law permits it.
For example, certain house-property losses may be adjusted against income under another head subject to the applicable limits and tax-regime rules.
Which Loss Can Cancel Which Gain?
This is the part that really matters for your tax calculation. Once you understand these two rules, capital-loss set off becomes much easier to follow.
Short-Term Capital Loss (STCL) Is More Flexible
A short-term capital loss can generally be set off against both short-term capital gains (STCG) and long-term capital gains (LTCG).
Long-Term Capital Loss (LTCL) Is Restricted
A long-term capital loss can generally be set off only against long-term capital gains (LTCG). It cannot be adjusted against short-term capital gains.
| Type of Loss | Can Reduce STCG? | Can Reduce LTCG? |
|---|---|---|
| Short-Term Capital Loss (STCL) | ✓ Yes | ✓ Yes |
| Long-Term Capital Loss (LTCL) | × No | ✓ Yes |
Does It Matter Which Asset the Loss Came From?
Usually, the key factor for normal capital-loss set off is the short-term or long-term classification, not whether both transactions involve the same type of asset.
However, special restrictions can apply to particular transactions or sources. A loss from an exempt source, for example, cannot simply be used to reduce taxable income.
What If You Have Both STCG and LTCG?
Because an STCL can be adjusted against either STCG or LTCG, the way available losses interact with gains taxed at different rates can affect the final tax outcome.
For example, qualifying equity STCG can currently be taxed at 20%, while qualifying equity LTCG under Section 112A is generally taxed at 12.5% above the applicable annual threshold. In a suitable case, preserving more of the loss against a higher-taxed gain may produce a better tax result.
Capital Losses Cannot Reduce Your Salary or Business Income
This is one of the most common misunderstandings, so it is worth being very clear:
A capital loss — whether short-term or long-term — cannot be used to reduce income outside the Capital Gains head.
A Capital Loss Cannot Directly Reduce:
- Your salary income
- Your business or professional income
- Your rental / house-property income
- Your interest or other-source income
Neha's ₹1 Lakh Capital Loss
Neha earns a salary of ₹8 lakh during the year. She also sells some shares at a loss and books a ₹1 lakh capital loss.
Neha cannot simply subtract ₹1 lakh from her salary and say her salary income has become ₹7 lakh. Her salary and her capital loss belong to different heads of income.
The ₹1 lakh loss remains within the Capital Gains head. Depending on whether it is an STCL or LTCL, it can be adjusted against eligible capital gains in the current year. If it cannot be fully used, the unadjusted eligible loss may generally be carried forward subject to the applicable filing conditions.
What If You Have No Gains to Set Off Against? Carry It Forward.
Here's the useful part for investors who have had a difficult year.
If your eligible capital losses are larger than your eligible capital gains — or if you have no capital gains available for set off — the unadjusted loss does not necessarily disappear.
Subject to the filing and set-off conditions, it can be carried forward and used against eligible capital gains in later tax years.
Carry Forward Period
Eligible capital losses can generally remain available for set off for up to eight succeeding tax years, subject to the prescribed conditions.
STCL Keeps Its Flexibility
A carried-forward short-term capital loss can generally be adjusted against future short-term or long-term capital gains.
LTCL Remains Restricted
A carried-forward long-term capital loss can generally be used only against future long-term capital gains.
The Filing Due Date Matters
If you want to carry forward a capital loss, your return of income or loss should generally be furnished on or before the applicable statutory due date.
Do not assume that every taxpayer has a 31 July deadline. The due date depends on the type of return and taxpayer.
Assessment Year vs Tax Year — What Changed?
Under the older Income-tax Act, 1961, taxpayers commonly worked with the terms previous year and assessment year. For example, income earned during FY 2024-25 relates to AY 2025-26.
The Income-tax Act, 2025, effective from 1 April 2026, uses the single concept of a tax year. The basic architecture of set off and carry forward has been retained.
Eligible losses that arose under the old Act do not disappear merely because the law changed. They continue into the new Act subject to the original manner and remaining carry-forward period that applied to those losses.
Where Do You Report Capital Gains and Losses in Your ITR?
Current notified ITR forms use Schedule CG for reporting the relevant capital-gain and capital-loss transactions.
Schedule CFL records eligible losses that remain available for carry forward to later years.
ITR-2 is generally applicable to an individual or HUF with capital gains who does not have income from profits and gains of business or profession.
Where an individual or HUF also has business or professional income, ITR-3 is generally the relevant form under the currently notified filing framework.
Business Loss and House Property Loss: Different Rules Apply
Capital losses have their own set-off restrictions. Business losses and house-property losses follow a different framework, so they should not be mixed together automatically.
Business Losses
A normal current-year business or professional loss, other than losses subject to special restrictions, can generally be adjusted against income under another head, including capital gains. It cannot, however, be set off against salary income.
| Situation | What the Rule Generally Allows |
|---|---|
| Same-year normal business loss | Can generally be adjusted against eligible income under other heads, including capital gains, but not against salary income. |
| Normal business loss carried forward | Can generally be set off only against future business or professional income. The normal maximum carry-forward period is eight succeeding tax years. |
| Speculation business loss | Can be set off only against speculation-business profits and can generally be carried forward for up to four succeeding tax years. |
House Property Loss
House-property losses often arise where allowable interest and other permitted deductions exceed the taxable income from the property. The treatment depends importantly on the tax regime being used.
Current-Year Inter-Head Set Off
A current-year house-property loss can generally be set off against income under another head up to ₹2 lakh for the year.
Any eligible balance can generally be carried forward for up to eight years and used only against future house-property income.
No Inter-Head Set Off
Under the current new-regime rules, a house-property loss cannot be adjusted against salary, capital gains or another head of income.
The Income Tax Department's current filing guidance also states that such loss under the new regime cannot be carried forward to later years.
The Capital Gains Account Scheme (CGAS): When You Need More Time to Reinvest
Sometimes you sell an eligible capital asset and intend to claim a capital-gains exemption by reinvesting in another qualifying asset, but you have not completed the required investment by the time your return-filing due date arrives.
Where the relevant exemption provision permits it, the Capital Gains Accounts Scheme (CGAS) allows the required unutilised amount to be deposited with an authorised deposit office before the applicable due date. The deposit can then be used within the statutory reinvestment period.
CGAS Does Not Create a New Tax Exemption
CGAS is a mechanism for preserving an exemption that you may already qualify for under provisions such as Sections 54, 54B, 54D, 54F, 54G, 54GA or 54GB. Your eligibility still depends on satisfying the conditions of the particular exemption section.
Deposit Before the Applicable Due Date
Deposit the unutilised amount required under the relevant exemption provision into CGAS before the applicable return filing due date where the law requires such deposit.
Claim the Eligible Exemption
Report the transaction and eligible exemption correctly in the return, taking into account amounts already invested and qualifying amounts deposited in CGAS.
Use the Money Within the Required Period
Use the deposited funds only for the qualifying purpose and within the time limit prescribed by the specific exemption section.
Two Main Types of CGAS Accounts
Designed for amounts that may need to be withdrawn as the qualifying purchase or construction progresses.
A term-deposit format that may be used where the money does not need to be accessed immediately, subject to the Scheme's withdrawal and conversion procedures.
- The deposit must be made with an authorised deposit office under the CGAS rules.
- Withdrawn amounts must be used for the purpose allowed by the relevant capital-gains exemption provision.
- If the eligible deposited amount is not utilised within the prescribed period, the unutilised portion can become taxable in the tax year in which the relevant time limit expires.
- For Section 54, the cost of the new asset taken into account for exemption purposes is subject to the ₹10 crore statutory ceiling.
- A separate ₹10 crore limitation also applies under Section 54F to the relevant investment / consideration computation. Do not treat ₹10 crore as a universal limit for every CGAS-linked exemption.
- Keep deposit receipts, passbook or deposit certificate, withdrawal records, invoices, purchase deeds and construction proofs with your tax records.
Tax Loss Harvesting: Using Your Losses Strategically Before Year-End
Tax loss harvesting is a strategy in which an investor deliberately sells an investment that is currently at a loss so that the loss becomes realised for tax purposes.
That realised loss can then be adjusted against eligible capital gains under the normal capital-loss set-off rules.
It may feel counterintuitive to intentionally book a loss. However, if you already have taxable capital gains and the investment no longer fits your portfolio — or you are comfortable realising the loss — harvesting can reduce the capital gain on which tax is ultimately calculated.
Tax loss harvesting does not create a fake loss. It converts an existing unrealised market loss into an actual realised capital loss through a genuine sale, after which the normal STCL and LTCL set-off rules apply.
Know Your Realised Gains
Review your broker statement or capital-gains report and identify the profits you have already realised during the tax year. Separate short-term gains from long-term gains because the set-off rules differ.
Identify Loss-Making Holdings
Review investments currently trading below your tax cost. Before selling, determine whether the resulting loss would be an STCL or LTCL based on the applicable holding-period and special tax rules.
Complete the Sale Before the Tax Year Ends
If you want the realised loss to fall in the same tax year as your existing gains, the relevant transfer needs to occur within that tax year. For the Indian financial cycle, that means completing the transaction by 31 March.
Apply the Correct Set-Off Rule
STCL can generally be adjusted against STCG or LTCG, while LTCL can generally be adjusted only against LTCG. Do not mix capital losses with salary or other unrelated heads of income.
Decide Whether You Still Want the Investment
Selling for tax reasons should not automatically mean abandoning your investment strategy. If you still want market exposure, decide whether and when to re-enter based on your investment view, transaction execution and the tax rules applicable to the transaction.
Include All Transaction Costs
Brokerage, exchange charges, stamp duty and STT can reduce the economic benefit of selling and buying again. Compare the expected tax benefit with the full trading cost before acting.
Kiran's Tax Loss Harvesting Example
Kiran has realised ₹2.5 lakh of qualifying LTCG from equity-oriented mutual funds. She also owns another equity fund that is showing a ₹1 lakh loss and has been held long enough for the loss to qualify as an LTCL.
She decides to realise that loss before the end of the tax year.
| Calculation | Without Harvesting | With Harvesting |
|---|---|---|
| LTCG | ₹2,50,000 | ₹2,50,000 |
| LTCL realised | ₹0 | −₹1,00,000 |
| Net LTCG after set off | ₹2,50,000 | ₹1,50,000 |
| Section 112A threshold | −₹1,25,000 | −₹1,25,000 |
| Taxable LTCG | ₹1,25,000 | ₹25,000 |
| Tax at 12.5% | ₹15,625 | ₹3,125 |
Other Year-End Tax-Smart Moves
ELSS Mutual Funds
ELSS funds carry a three-year lock-in and can be relevant where you are eligible to claim the familiar ₹1.5 lakh Section 80C deduction under the old-regime framework. Do not invest solely for the deduction; consider equity risk, lock-in and your overall portfolio.
Specified Tax-Free Bonds
Interest from qualifying notified tax-free bonds can be exempt from income tax. Fresh issuances are uncommon, although some existing bonds may trade in the secondary market. Their market price can move, and capital gains on selling the bond are separate from the tax treatment of its interest.
Real-World Capital Loss Set-Off Case Studies
Nothing makes these rules easier to understand than seeing them applied to actual numbers. The examples below use simplified figures so you can see how each rule changes the tax result.
Unless stated otherwise, tax figures below are shown before 4% cess, surcharge and any separate exemption or special adjustment.
Using STCL to Reduce STCG — Ravi's Story
Ravi realises ₹3 lakh of STCG from equity shares covered by the 20% Section 111A rate. He also books a ₹1 lakh STCL on another investment during the same year.
| Calculation | Without Set Off | With Set Off |
|---|---|---|
| STCG | ₹3,00,000 | ₹3,00,000 |
| STCL | ₹0 | −₹1,00,000 |
| Taxable STCG | ₹3,00,000 | ₹2,00,000 |
| Tax at 20% | ₹60,000 | ₹40,000 |
Using STCL to Reduce LTCG — Arjun's Story
Arjun has ₹4 lakh of qualifying equity LTCG and a ₹2 lakh STCL from another investment. Because an STCL can generally be adjusted against LTCG, he can use the loss here.
Without the ₹2 lakh STCL, his taxable amount after the ₹1.25 lakh threshold would have been ₹2.75 lakh, producing ₹34,375 of tax at 12.5%.
LTCL Cannot Reduce STCG — Meena's Story
Meena sells gold held for more than the applicable long-term holding period and books a ₹1.5 lakh LTCL. In the same tax year, she has ₹2 lakh of qualifying equity STCG.
A long-term capital loss cannot be adjusted against a short-term capital gain. Therefore, the ₹1.5 lakh LTCL cannot reduce her ₹2 lakh STCG.
Meena files the applicable loss return on time and carries the ₹1.5 lakh LTCL forward.
In a later tax year, assume she realises ₹3 lakh of qualifying equity LTCG. The carried-forward LTCL can then be adjusted against that LTCG.
Same-Year Business Loss Reduces Capital Gain — Vikram's Story
Vikram operates a small business and incurs a normal current-year business loss of ₹3 lakh. In the same year, he sells land and realises ₹5 lakh of LTCG.
Assuming the business loss is not subject to a special restriction, a current-year normal business loss can generally be adjusted against capital gains. It cannot be adjusted against salary income.
This simplified ₹25,000 figure is before cess and assumes no separate capital-gains exemption such as an eligible reinvestment exemption applies.
If the ₹3 lakh business loss had instead been carried forward from an earlier year, the normal carried-forward business-loss rules would generally restrict it to future business or professional income rather than allowing it against this capital gain.
Missing the Filing Due Date — Sunita's Costly Mistake
Sunita sells investments during the year and realises capital losses totalling ₹1.2 lakh. She has no capital gains available against which to use them.
Because she has no taxable gain, she assumes there is no reason to file the loss return on time and submits it after the applicable statutory due date.
That can be costly. To preserve an eligible capital loss for carry forward, the loss return generally needs to be filed within the applicable due date.
Capital Gain Loss Set Off FAQs
These are the questions investors most often ask about capital loss set off, carry forward, equity LTCG, ITR reporting and tax-loss harvesting — answered simply and clearly.
Can long term capital loss be set off against short term capital gain?
No. A long-term capital loss (LTCL) can generally be set off only against long-term capital gains (LTCG). It cannot be adjusted against short-term capital gains, regardless of whether the gain and loss came from the same type of asset.
Can short term capital loss be set off against long term capital gain?
Yes. A short-term capital loss (STCL) is more flexible. It can generally be set off against both short-term capital gains (STCG) and long-term capital gains (LTCG).
If the eligible STCL cannot be fully used in the current tax year, the remaining amount can generally be carried forward, subject to the prescribed filing conditions.
Can I set off a capital loss against my salary?
No. Capital losses remain within the Capital Gains head for set-off purposes. They cannot directly reduce salary income, business or professional income, house-property income, interest income or other-source income.
If you do not have enough eligible capital gains in the current year, the unadjusted loss may instead be carried forward where the statutory conditions are satisfied.
How many years can I carry forward capital loss in India?
Under the current framework, an eligible unadjusted capital loss can generally be carried forward for up to 8 succeeding tax years.
STCL continues to be available against eligible STCG or LTCG, while LTCL remains restricted to LTCG.
Do I need to file ITR even if I had only losses and no income?
If you want to preserve an eligible capital loss for carry forward, the return of income or loss generally needs to be filed on or before the applicable statutory due date.
This can matter even when you have little or no taxable income and no capital gains available in the current year.
Can a capital loss on shares be set off against a gain on property?
Yes, in a normal eligible capital-loss situation the asset type does not have to be identical.
For example, an STCL on shares can generally be adjusted against an eligible LTCG on property. An LTCL on shares can also generally be adjusted against an eligible LTCG on property.
What matters most is whether the loss is short-term or long-term and whether any special restriction applies to that particular transaction.
What is the tax-free limit on LTCG from shares after Budget 2024?
For qualifying long-term capital gains covered by Section 112A — including eligible listed equity shares and equity-oriented mutual fund units — tax at 12.5% generally applies only to the aggregate qualifying LTCG that exceeds ₹1.25 lakh in the tax year.
The ₹1.25 lakh threshold applies separately to each taxpayer's own qualifying gains. Health and education cess, and surcharge where applicable, are added to the resulting tax.
Where exactly do I enter capital losses in my ITR?
In the currently notified individual ITR framework, current-year capital-gain and capital-loss transactions are reported in Schedule CG.
Eligible losses available for carry forward are reflected in Schedule CFL, while brought-forward losses and their adjustment are reflected through the applicable brought-forward-loss schedules, including Schedule BFLA in the current forms.
ITR-2 is generally used by individuals or HUFs with capital gains but no income from business or profession. ITR-3 is generally relevant where business or professional income is also present.
Is there a wash sale rule in India?
India does not currently use a broad US-style rule that automatically disallows a normal capital loss simply because the same security is repurchased within a fixed 30-day period.
That does not mean every artificial transaction is safe. The sale should be genuine, and specific anti-avoidance provisions can apply to particular arrangements — for example, certain bonus-stripping transactions.
What if I have both STCG and LTCG and want to use my STCL?
An STCL can generally be adjusted against either STCG or LTCG, so when several gain categories are present, the allocation can affect the overall tax outcome because different gains may be taxed at different rates.
For example, qualifying equity STCG is currently taxed at 20%, while qualifying equity LTCG under Section 112A is generally taxed at 12.5% above the ₹1.25 lakh threshold.
From a tax-planning perspective, using available loss against a higher-taxed gain can sometimes produce a larger benefit. But this should not be treated as a universal statutory rule requiring STCL to be applied to the highest-rate gain first.
STCL can generally reduce STCG or LTCG. LTCL can generally reduce only LTCG. Any eligible loss that cannot be used in the current year may be carried forward subject to the applicable filing and statutory conditions.
Simple Habits That Can Save You Real Money
Capital gain loss set off is not a grey area or a loophole. It is a lawful mechanism under Indian income-tax rules that allows eligible capital losses to be adjusted against eligible capital gains, so tax is calculated after the permitted set off. Before you apply any set-off, it helps to know exactly where you stand — you can calculate your capital gains tax using a free tool to get a clearer picture of your numbers first.
Identify whether your loss is short-term or long-term, report it correctly in your return, preserve eligible losses by filing within the applicable due date, and keep supporting transaction records for future reference.
CA Sagar Batra
ICAI Registered Chartered Accountant · 10+ Years of Professional Experience · 12,000+ Tax Filings
Chartered Accountant with experience in taxation, compliance and business advisory. His work covers Income Tax, GST, TDS, tax notices, business compliance and financial documentation for individuals and businesses across India.