How to Carry Forward and Set Off Capital Losses in ITR
Lost money on stocks, mutual funds, or property this year? The good news is you can use those losses to reduce your tax liability. And if you don’t use them all this year, you can carry them forward to the next year for ITR filing.
This article will help you understand how to carry forward and set off capital losses in ITR.
Types of Capital Losses
Capital losses are of two types, depending on how long you hold the asset:
- Short-Term Capital Loss (STCL): Loss from selling an asset within a short period (like shares held for less than 12 months).
- Long-Term Capital Loss (LTCL): Loss from selling an asset after holding it for a longer duration (like shares held for more than 12 months, or property held for over 24 months).
Rules for Setting Off Capital Losses
The Income Tax Act has clear rules for adjusting losses:
1. Short-Term Capital Loss (STCL):
- Can be set off against both short-term and long-term capital gains.
- Example: If you lost ₹30,000 in shares (short-term) and gained ₹50,000 by selling property (long-term), you can set off ₹30,000 and pay tax only on ₹20,000.
2. Long-Term Capital Loss (LTCL):
- Can be set off only against long-term capital gains.
- If you lost ₹1,00,000 on selling property (long-term) and gained ₹80,000 in shares (long-term), you can adjust ₹80,000. The balance ₹20,000 can be carried forward.
Carry Forward of Capital Losses
If you cannot adjust all your losses in the same financial year, you can carry them forward for up to 8 years.
But remember:
- You must file your ITR within the due date to carry forward losses.
- The carried-forward losses can only be set off against capital gains in the future (following the same rules for STCL and LTCL).
Let’s understand this with the help of an example –
Suppose you made a long-term capital loss of ₹2,00,000 in FY 2024-25, but your long-term gains were only ₹50,000.
- You can set off ₹50,000 this year.
- The remaining ₹1,50,000 can be carried forward for the next 8 years.
- In the next year, if you earn a long-term gain of ₹1,20,000, you can adjust it with your carried-forward loss.
- The remaining ₹30,000 can again be carried forward to the next year, upto 8 assessment years.
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