ITR filing AY 2026-27: How to turn your stock market losses into tax savings

If you booked a loss in the stock market in FY 2025-26 and assumed that money had vanished, you still have the option to turn that loss into something useful.

In the eyes of the Income Tax Department, that loss isn’t the end of the story.

Capital losses from selling equity at less than the purchase price can be set off or adjusted against other capital gains to reduce your tax burden for AY 2026-27, or carried forward for saving tax in the future.

The provision for carry forward of losses ensures that your capital losses do not disappear but are carried forward to lower your tax burden for up to eight years. This article explains how this works.

How it works

The income tax rules treat income from different sources differently by classifying them into separate heads like salary, house property, business or profession, capital gains and income from other sources.

Capital losses are dealt with under the head capital gains.

The tax rules do not allow inter-head adjustments under the head capital gains. This means capital losses cannot be adjusted against income under other heads like salary, house property etc.

However, intra-head adjustment of capital loss is allowed as follows:

• Short-term capital loss (STCL): It occurs when you sell stocks after holding for less than 12 months. It can be adjusted against both long-term capital gains (LTCG) and short-term capital gains (STCG).
• Long-term capital loss (LTCL): It occurs when you sell stocks after holding them for more than 12 months. It can be adjusted only against LTCG.

After making the applicable set-off, the tax rules allow you to carry forward the unused capital loss from stocks for up to eight years.

Example

For example, suppose you have the following capital losses and gains in FY26:

LTCL: ₹2 lakh

STCL: ₹1 lakh

STCG: ₹50,000

LTCG: ₹1 lakh

As per the rule, you can set off the LTCL of ₹2 lakh against the LTCG of ₹1 lakh. The balance ₹1 lakh LTCL can be carried forward for adjustment in FY27.

Similarly, you can set off ₹1 lakh STCL against ₹50,000 STCG. The balance v50,000 STCL can be carried forward.

Now, suppose you make the following capital gains in FY27:

STCG: ₹1 lakh

LTCG: ₹2 lakh

In FY27, you would be allowed to set off the balance losses of FY26 as follows:

₹1 lakh LTCL to be adjusted against ₹2 lakh LTCG. You will have to pay tax only on the balance of ₹1 lakh LTCG.

As LTCG up to ₹1.25 lakh is exempted, you will have to pay no LTCG tax in FY27.

₹50,000 STCL can be adjusted against ₹1 lakh STCG, which means you will have to pay STCG tax only on the balance ₹50,000 STCG.

Key rules

Unused capital losses from FY26 can be carried forward for up to eight assessment years, i.e. till FY34 (AY 2034-35).

You need to file ITR before the due date to carry forward your losses in the stock markets. To keep carrying forward, you need to keep filing ITR before the due date every year.