How can I offset stock losses against other taxable income?

You can offset stock losses against taxable income by using tax-loss harvesting. In India, short-term capital losses (STCL) can be set off against short-term or long-term capital gains, while long-term capital losses (LTCL) can only be set off against long-term capital gains. Unused losses can be carried forward for up to 8 years.

1. Understand Short-Term and Long-Term Losses

Stock losses are categorized into short-term and long-term based on the holding period.

• Short-term losses apply if stocks were held for less than 12 months.
• Long-term losses apply if stocks were held for more than 12 months.
• Each type of loss has different offsetting rules.

2. Set Off Losses Against Gains

Losses can be used to offset specific types of gains.

• Short-term capital losses (STCL) can offset both STCG and LTCG.
• Long-term capital losses (LTCL) can only offset LTCG.
• Losses cannot be set off against salary or business income.

3. Carry Forward Losses for Future Offsetting

If you can't offset losses in the same year, carry them forward for up to 8 years.

• Ensure losses are reported in your Income Tax Return (ITR) before the deadline.
• Carried-forward losses can be used only against capital gains in future years.
• Maintain proper documentation for tax filing.

4. Use Tax-Loss Harvesting

Tax-loss harvesting helps reduce tax liability by strategically selling loss-making stocks.

• Sell underperforming stocks before the financial year-end.
• Reinvest in better-performing assets.
• Use realized losses to offset capital gains tax.

5. Consult a Tax Expert

A tax professional can help you navigate complex tax laws and maximize deductions.

• Get expert advice on offsetting losses correctly.
• Ensure compliance with tax laws.
• Reduce unnecessary tax burdens.