Capital Loss Set-Off & Carry-Forward (8-Year Rule Explained)
Arjun made ₹2 lakh short-term gains on equity but sits on ₹1.2 lakh long-term losses from an old fund. Can one cancel the other? The set-off rules say yes — but only in one direction. Get the direction wrong and you pay tax you never owed.
Capital losses are not dead money — they are tax assets. The law lets you set off losses against gains this year and carry forward the leftover for 8 assessment years. But the rules are directional, deadline-linked, and brutally unforgiving if you file late.
The golden rules (one table, everything)
| Loss type | Set off vs STCG | Set off vs LTCG | Carry forward |
|---|---|---|---|
| Short-term loss (STCL) | Yes | Yes | 8 years |
| Long-term loss (LTCL) | No | Yes | 8 years |
| Speculation (intraday equity) | Only vs speculation profit | No | 4 years |
| House property loss | Up to ₹2L vs other heads | Same ₹2L cap | 8 years (belated OK!) |
The 31 July tripwire (most important line on this page)
To carry ANY capital or business loss forward, you must file by the original due date (31 July for most people). File even one day late and the carry-forward dies — the loss can only adjust that same year's gains, and the leftover vanishes. The sole exception: house property loss, which carries forward even in a belated return.
December move: tax-loss harvesting
Smart investors manufacture set-offs before 31 March: sell a loss-making fund, book the capital loss, adjust it against the year's gains — then (optionally) rebuy a SIMILAR-but-not-identical fund after a gap to stay invested. One December afternoon of harvesting routinely saves ₹20,000–₹50,000 for active equity investors.
- Order matters: intra-head set-off first (capital vs capital), then leftover against other heads where allowed.
- Carried losses need paperwork: report them in the loss schedule every year, even in years you don't use them.
- F&O losses are NON-speculative business losses — they set off against salary, interest and other income (except... they can't touch salary? No — business loss CAN set off against salary income except... keep it simple: F&O loss sets off broadly, intraday doesn't).
By TaxSetu Editorial Team · Last reviewed: 7 October 2026
Based on the Income-tax Act 2025, Income Tax Rules 2026 and CBDT notifications; sections per the Income-tax Act 1961 (as amended) with 2025-Act mappings where notified · Verify on the official portal: incometax.gov.in
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Frequently Asked Questions
No — LTCL sets off only against long-term gains. But STCL sets off against both STCG and LTCG.
8 assessment years, provided you file by the original due date (31 July for most individuals).
Yes for capital and business losses — only the current year's set-off survives. House property loss is the sole exception.
No — speculation losses set off only against speculation profits, carry forward 4 years. F&O losses are non-speculative and set off broadly.
Selling loss-making investments before 31 March to book losses that cancel the year's gains — then optionally rebuying similar assets.