Chapter 3 of 4

Setting off and carrying forward losses

6 min read

Losses on the sale of investments are not wasted. They can reduce the tax on your gains, now or in later years, if you follow the rules.

The rules in short

A short-term capital loss can be set off against both short-term and long-term capital gains.
A long-term capital loss can be set off only against long-term capital gains.
Unabsorbed capital losses can be carried forward for eight assessment years after the year in which they arose.
To carry a loss forward you must file your return on or before the due date.

Setting off a short-term loss

Short-term loss: ₹30,000. Short-term gain: ₹50,000.
Net short-term gain is ₹20,000, taxed at 20%: ₹4,000 instead of ₹10,000.

Setting off a long-term loss

Long-term gain: ₹1,80,000. Long-term loss: ₹40,000.
Net long-term gain: ₹1,40,000. The first ₹1,25,000 is exempt.
Taxable amount ₹15,000 at 12.5% is ₹1,875.

Key takeaways

Short-term losses offset any capital gain; long-term losses offset only long-term gains.
Carry forward unused losses for eight years.
File your return on time to keep that right.

This content is for education only and is not investment or tax advice. Mutual fund investments are subject to market risks; read all scheme-related documents carefully.