Did you lose a lot of money in stocks this year? Here's how to use those losses to pay less tax
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Lost money in the stock market? The IT Act lets you use those losses to cut your tax bill
Capital losses on listed shares are not dead money. Under the Income Tax Act, you can set them off against capital gains — either in the same year or carry them forward for up to 8 years. Most investors simply don't know how to use this rule.
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STCL vs LTCL: one is more powerful than the other — here's the difference
Short-term capital loss (STCL) — can be set off against both STCG (short term capital gains) and LTCG (long term capital gains). More flexible.
Long-term capital loss (LTCL) — can only be set off against LTCG. More restricted.
Neither STCL nor LTCL can be set off against salary, business income, or any other head. Capital losses stay within capital gains only.
Long-term capital loss (LTCL) — can only be set off against LTCG. More restricted.
Neither STCL nor LTCL can be set off against salary, business income, or any other head. Capital losses stay within capital gains only.
3/8
Didn't use your capital loss this year? You can carry it forward for 8 full years
Short-term loss
8 years
Set off vs STCG + LTCG
Long-term loss
8 years
Set off vs LTCG only
Both types carry forward for 8 assessment years from the year the loss was first incurred — giving you a long runway to use them.
8 years
Set off vs STCG + LTCG
Long-term loss
8 years
Set off vs LTCG only
Both types carry forward for 8 assessment years from the year the loss was first incurred — giving you a long runway to use them.
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4/8
Miss the ITR filing deadline and you permanently lose the right to carry forward your loss
This is the rule that catches most investors off guard. Capital losses can only be carried forward if you file your income tax return on or before the original due date — typically July 31. A belated return kills your carry-forward rights for capital losses.
House property loss is the only exception — it can be carried forward even with a belated return. Capital losses get no such relief.
House property loss is the only exception — it can be carried forward even with a belated return. Capital losses get no such relief.
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On the new tax regime? Your brought-forward capital losses still work — with one condition
Switching to the new tax regime doesn't wipe out your existing carried-forward capital losses. You can still set them off — but they must follow the rules of the old Income Tax Act 1961 under which they were originally incurred.
The new regime restricts house property losses (no inter-head set-off allowed), but capital loss carry-forward rules remain intact.
The new regime restricts house property losses (no inter-head set-off allowed), but capital loss carry-forward rules remain intact.
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Here's how one investor used 4 years of losses to legally pay zero tax on gains
1. AY 2020-21: Incurred STCL ₹3,000 + LTCL ₹1,000 — both carried forward
2. AY 2021-22: STCG ₹5,600 — STCL of ₹3,000 set off, taxable STCG reduced to ₹2,600
3. AY 2022-23: LTCG ₹7,000 — remaining LTCL + STCL set off, taxable LTCG only ₹3,900
4. AY 2023-24: Both STCG and LTCG reduced significantly using that year's fresh losses
(Source: Clear Tax)
2. AY 2021-22: STCG ₹5,600 — STCL of ₹3,000 set off, taxable STCG reduced to ₹2,600
3. AY 2022-23: LTCG ₹7,000 — remaining LTCL + STCL set off, taxable LTCG only ₹3,900
4. AY 2023-24: Both STCG and LTCG reduced significantly using that year's fresh losses
(Source: Clear Tax)
7/8
3 things you cannot do with capital losses — no matter what
- You cannot set off capital losses against salary, interest, or rental income — not allowed under any regime
- You cannot use losses from exempt sources (like a partnership firm profit share) — exempt loss = no set-off, no carry forward
- You cannot set off any capital loss against lottery winnings, prize money, or casual income — blocked by law
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The rules every stock market investor must remember at tax time
- STCL offsets both STCG and LTCG
- LTCL offsets LTCG only
- 8-year carry forward window
- File ITR on time or lose carry forward
- Works in new tax regime too
- No set-off against salary or other income
- Always file your ITR before the due date in the year you incur a capital loss — that single action preserves up to 8 years of future tax savings.
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