Understanding Set off and Carry Forward of Losses from Shares

Every cloud has a silver lining.

Are you involved in business related to Intraday or Futures and Options Trading or have some Capital Losses from the sale of securities? Well, in case you have incurred losses in this business, there might be a silver lining in your cloud of losses.

The transactions entered by you in the Capital Market, are majorly classified as Intraday trading, Futures and Options trading or Capital Gains. The set-off and carry-forward losses rules are different for all, but you can set the losses against each other and plan your taxes better.

Let’s understand the rules for setting off and carrying forward for each type of transaction:

Though Intraday and F&O Trading are considered Business Incomes, the rules for setting-off losses are different. Intraday Trading is classified as Speculative Business, hence the losses from Speculative business can only be set off against income from Speculative business.

On the other hand, F&O Trading is classified as a Non-Speculative business, the losses from a Non-speculative business can be set off against income from a Speculative business.

So, the losses from F&O trading can be set off against Intraday income but losses from Intraday cannot be set off against F&O Trading income.

Let’s understand with the help of some examples:

Example 1: Mr. Parikh has been actively trading in the Stock Market but has incurred losses of ₹25,00,000 from Intraday Trading. On the other hand, he has earned profits of ₹10,00,000 from F&O trading. How will the losses be treated?

Solution: Here, since the losses of ₹25,00,000 from Intraday cannot be adjusted against profits of ₹10,00,000 from F&O Trading, Mr. Parikh will have to pay tax on the Profits from F&O Trading. The losses from Intraday will be carried forward for 4 Financial Years and will be allowed to set off against income from Intraday Trading.

Example 2: Mr. Harsora is involved in Intraday Trading and has earned a profit of ₹7,50,000. He is also trading in the F&O segment but has incurred losses of ₹13,00,000. Also, he has some LTCG from the sale of equity shares amounting to ₹2,15,000. Calculate his taxable income.

Solution: Calculation of Taxable Income of Mr. Harsora:

In the above example, the losses from F&O Trading have been adjusted against Income from Intraday as well as LTCG. The remaining loss of ₹3,35,000 will be carried forward for 8 years. In future years it will be adjusted against F&O Trading income as well as Intraday Trading Income.

For further queries, comment below!

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Hi @CA_Niyati_Mistry

I had c/f LTCL on shares from last AY. Is it necessary that I mention this while filing returns for the current AY? The reason I ask this is because my profit for the current AY is well with the threshold limit of 1 lac upto which tax is exempt and If I mention the outstanding LTCL in the relevant place while filing returns, the gain that I earned is getting knocked off against this thereby reducing the available LTCL which I can use for the subsequent years(within 8 years) .I do not want this to happen because, as I said, my gains are well within the exemption limit of Rs.1,00,000/-. Please advise.

Hello @gdshan,

Yes, it is necessary to set off the carry forward LTCL from last AY. The LTCG up to ₹1 Lakhs is not exempt but merely income on which tax is not levied. Not adjusting the last year’s losses with an intent that it will be used in future years when you have LTCG liable to tax will defy the very purpose of law. Hence, it is advisable to adjust the losses.

Hope this helps!

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Hi @CA_Niyati_Mistry

Got it. Thanks for clarifying