What are the smart ways stock market traders can lower the tax they pay on profits when filing their income tax return under the new rules
Stock market traders and investors can significantly reduce
their capital gains tax by taking advantage of the set-off and loss
carry-forward concept, even under the new tax regime. However, to utilize this
concept, you must first understand what type of stock market income is eligible
for it. Stock market trading can include equity intraday trading,
delivery-based trading of equity shares, and even speculative and
non-speculative futures and options (F&O) trading.
How many years can you carry forward and adjust the losses?
The rules for speculative and non-speculative stock market
income are different. For non-speculative F&O income, losses can be carried
forward for up to eight assessment years. For speculative intraday trading,
losses can be carried forward for up to four assessment years.
Explains:
•Under
the new tax regime of Section 115BAC of the Income Tax Act, 1961, the
adjustment and carry forward of losses arising from stock market trading are
allowed, depending on the nature of the trading activity.
•Where
business activities are considered non-speculative, such as delivery-based
trading carried out during the course of business, the losses incurred can be
set off against any major income, including capital gains and income from other
businesses (but not against salary income).
•If there
is an absorbed loss, it can be carried forward for a maximum of 8 assessment
years, provided the income details are filed within the stipulated time and
where applicable, the tax audit requirements are met.
•On the
other hand, income based on speculation, such as that generated from intraday
stock trading, is considered income from speculative business. Losses from
speculative business can only be set off against other speculative income in
the same year.
They cannot be adjusted against other income sources.
However, such gambling losses can be carried forward for 4 assessment years and
can only be adjusted against gambling income in those years, subject to the
condition of timely filing of return.
Long-term capital losses cannot be adjusted against
long-term capital gains.
Explains:
• Where the income from stock market trading in securities
falls under "Capital Gains", the set-off and carry-forward treatment
will follow the rules of capital gains. Accordingly, Short-Term Capital Loss
(STCL) can be set off against both short-term and long-term capital gains,
while Long-Term Capital Loss (LTCL) is only permitted to be set off against
long-term capital gains. Both categories of capital loss can be carried forward
for a maximum of 8 assessment years.
The new tax bill 2025 presents a one-time relief scheme that
is for short-term and long-term capital loss.
The Income Tax Bill, 2025 has introduced a temporary
one-time relief. It allows taxpayers to adjust accumulated short-term and
long-term capital losses against any type of capital gains (short-term or
long-term) under the new system as of March 31, 2026.
This set-off will be allowed for the 8 assessment years
starting from the financial year 2026-27.
Traders and investors in the stock market can significantly reduce their capital gains tax by taking advantage of the set-off and loss carry-forward concept, even under the new tax regime.
However, to utilize this
concept, you must first understand what type of stock market income qualifies
for it. Stock market trading can include equity intraday trading,
delivery-based trading of equity shares, and even speculative and
non-speculative futures and options (F&O) trading.
Check the rules of different types of stock market trading
below.
Explains:
•Where
business activities are considered non-speculative, such as delivery-based
trading carried out during the course of business, the losses incurred can be
set off against any major income, including capital gains and income from other
businesses (but not against salary income).
•If there
is an absorbed loss, it can be carried forward for 8 assessment years, provided
that the income return is filed within the stipulated time and the tax audit
requirements, where applicable, are properly adhered to.
•On the
other hand, income based on speculation, such as that arising from intraday
stock trading, is considered income from speculative business. Losses from
speculative business can only be set off against other speculative incomes in
the same year.
They cannot be adjusted against other income sources.
However, such estimated losses can be carried forward for 4 assessment years
and can only be adjusted against estimated income in those years if the return
is filed on time.
Long-term capital losses cannot be adjusted against long-term capital gains.
Explains:
•Where the income from stock market transactions is included in 'capital gains', the set-off and carry-forward treatment will adhere to the rules of capital gains. Accordingly, short-term capital losses (STCL) can be set off against both short-term and long-term capital gains, while long-term capital losses (LTCL) are restricted to being set off only against long-term capital gains.
Capital losses from both categories can be carried forward for a maximum of 8 assessment years. The new tax bill 2025 introduces a one-time relief measure for short-term and long-term capital losses. The Income Tax Bill, 2025 allows for a transitional one-time relief.
It permits taxpayers to set off accumulated
short-term and long-term capital losses as of March 31, 2026, against any type
of capital gains (short-term or long-term) under the new regime. Surana states:
“This set-off will be allowed for 8 assessment years starting from 2026-27.”
