The Indian government’s New Income Tax Bill, 2025 has introduced a major change in capital gains taxation. Using the new tax rule, taxpayers will now be able to set off Long-Term Capital Loss (LTCL) against Short-Term Capital Gains (STCG). Thus, it is a significant move that could provide significant tax relief and improve portfolio outcomes.
What Is the Tax Rule to Set Off LTC Loss with STCG?
Under existing provisions of the Income Tax Act, 1961, long-term capital losses can only be adjusted against long-term capital gains. As a result, it often leads to underutilization of losses, especially when an investor has STCG but no LTCG in a given year.
However, the new Tax Rule to Set Off LTC Loss with STCG changes that for one time only. As per clause 536(n) of the new tax bill, LTCL incurred up to March 31, 2026, can be carried forward and set off against any type of capital gain, including STCG, starting from FY 2026–27.
This rule will benefit investors of mutual funds or equity with accumulated long-term losses.
Key Highlights of the New Tax Provision to Set Off LTC Loss
- One-Time Use: The new tax rule to set off LTC Loss with STCG is not a recurring benefit. It is strictly applicable to losses accumulated up to March 31, 2026.
- Greater Flexibility: Taxpayers can now use LTCL to reduce short-term capital gains taxation. The STCG is typically taxed at a higher rate (15%).
- Carry Forward: These losses can be carried forward for eight assessment years, starting from the year in which the loss was first computed.
How This Affects Taxpayers
This new tax rule to set off LTC loss with STCG is a strategic advantage for investors and high-net-worth individuals. For example, if you’ve incurred a ₹2 lakh LTCL in 2024–25 and earn ₹2.5 lakh STCG in 2026–27, you can now offset the ₹2 lakh, reducing your tax burden drastically.
Proper tax planning is crucial to ensure you maximize this opportunity. This includes:
- Reporting all past LTCL correctly during ITR Filing.
- Keeping thorough documentation of all transactions.
- Seeking professional help to optimize both capital gains and GST obligations.
Conclusion
In conclusion, If you have eligible long-term capital losses, now is the time to start planning. The Tax Rule to Set Off LTC Loss with STCG under the New Income Tax Bill, 2025 is a timely opportunity to bring more flexibility to your tax planning. You can also consult a qualified tax expert from our team and ensure you get maximum benefits.
If you need further assistance or have any doubts, our experts are here to help you. Call us: 8881-069-069.
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