If you’ve been investing or trading in the markets for a while, chances are you’ve seen some red days. And the income tax department gets it, capital markets don’t always work in our favour.
So, the ITD’s not just here to take a cut from your profits, but also offer relief when you lose money.
So if you’ve made losses from the stock market in the past financial year, you can actually use them to reduce your tax liability through set-off and carry forward of losses.
Let’s understand how it works.
What is setting-off of losses?
Let’s say you made a profit from one source and a loss from another in the same financial year. Instead of paying tax on the full profit and ignoring the loss, you can adjust one against the other. This is called a set-off.
There are two types:
a) Intra-head set-off
This is adjusting losses and profits within the same head of income. For example, you made ₹30,000 profit in F&O trades but lost ₹10,000 in intraday trades. You’ll pay tax only on the net ₹20,000.
b) Inter-head set-off
This is adjusting losses across different heads of income, usually when you can’t fully adjust it within the same head.
For instance, you lost ₹40,000 in F&O trading, but earned ₹60,000 in rent. The loss is adjusted and you’ll pay tax only on ₹20,000.
Losses cannot be set off against salary income, lottery winnings, crypto income, or betting income.
What is carry-forward of losses?
Now let’s say your losses are more than your profits, and you couldn’t adjust them fully this year. In this case, you can carry forward the remaining losses and adjust them against eligible income in future years.
Say in FY 2024-25, you had a ₹2,00,000 loss from F&O trades and earned ₹50,000 from your consulting business. You can set-off ₹50,000 this year. The remaining ₹1,50,000 can be carried forward and adjusted against business income in the coming years.
Rules for set off and carry forward of losses
Different types of losses have different rules — not just for what you can set off, but for how long you can carry them forward.
| Loss type | Current year loss adjustment | Brought-forward loss adjustment | Carry-forward duration |
|---|---|---|---|
| Speculative business loss (intraday) | Intraday profits | Intraday profits | 4 years |
| Non-speculative business loss (F&O) | Any income except salary | Any business income | 8 years |
| Long-term capital loss | Long-term capital gains | Long-term capital gains | 8 years |
| Short-term capital loss | Both short-term and long-term gains | Both short-term and long-term gains | 8 years |
- Speculative losses (intraday) can be carried forward for 4 years and set off only against speculative gains.
- Non-speculative losses (F&O) can be carried forward for 8 years and set off against any other income (except salary) in the same year.
- Long-term capital loss can only be adjusted against long-term capital gains, whether in the same year or future years.
- Short-term capital loss can be adjusted against both short-term and long-term gains.
You see, losses are a part of every investor’s journey. But with a little planning (and timely ITR filing), you can use them to save some taxes, today or a few years down the line.