You sold some shares or a property at a loss. Maybe you also booked a gain somewhere else this year. The question is simple: can the loss be used, against what, and for how long? This article covers capital losses on equity, debt and property. It does not cover crypto or F&O losses, which follow different rules.

## Which Act applies to which year

Two Income-tax Acts matter here, and the one that governs you depends on the year of the loss.

- **Assessment year 2026-27 (financial year 2025-26).** If you are filing the return now for sales made between 1 April 2025 and 31 March 2026, the Income-tax Act, 1961 governs. The Income-tax Act, 2025 repeals the 1961 Act, but it keeps the 1961 Act alive for proceedings in respect of any tax year beginning before 1 April 2026 (section 536(1) and (2), Income-tax Act 2025).
- **Tax year 2026-27 and later (from 1 April 2026).** The Income-tax Act, 2025 applies; it comes into force on 1 April 2026 (section 1(3), Income-tax Act 2025). Sales made on or after that date are dealt with under it.

The official comparison table of the Income Tax Department maps the loss sections of the old Act to the new one:

| Subject | Income-tax Act, 1961 | Income-tax Act, 2025 |
|---|---|---|
| Set-off of loss within one head | section 70 | section 108 |
| Set-off of loss against another head | section 71 | section 109 |
| Carry forward of capital loss | section 74 | section 111 |
| Return needed to carry a loss forward | section 80 | section 121 |
| Return of income | section 139 | section 263 |

The mapping tells you which new section replaces which old one. It does not say the wording is identical. For the 1961 Act, this article states only what is confirmed in the sources we opened: the section numbers above and the return-of-loss rule in section 139(3), Income-tax Act 1961, discussed below. The detailed wording of sections 70, 71, 74 and 80 of the 1961 Act should be read from the Act as amended before you rely on it for financial year 2025-26.

Everything in the steps below that quotes a section number from 108 to 121 or 263 is quoting the Income-tax Act, 2025, and so strictly speaks to tax year 2026-27 onwards. The structure of the rules is the same on the 1961 side as far as the mapping and section 139(3) show, but a reader with a financial year 2025-26 loss should have the 1961 text checked rather than assume it.

## What changed in July 2024, and what did not

The Finance (No. 2) Act, 2024 changed rates and holding periods for transfers on or after 23 July 2024:

- Short-term capital gains on listed shares and equity-fund units where securities transaction tax is paid: 20% for transfers on or after 23 July 2024 (section 111A, Income-tax Act 1961, as amended by the Finance (No. 2) Act, 2024). Before that date it was 15%. The 2025 Act carries the 20% in section 196, Income-tax Act 2025.
- Long-term capital gains under section 112A: 12.5% on gains above ₹1,25,000, for transfers on or after 23 July 2024 (section 112A, Income-tax Act 1961, as amended by the Finance (No. 2) Act, 2024). Before that date it was 10%. The 2025 Act carries this in section 198.
- Other long-term capital gains: 12.5% under section 197 of the 2025 Act.
- Holding period: the Finance (No. 2) Act, 2024 changed "thirty-six months" to "twenty-four months". The 2025 Act, in its definition of a short-term capital asset, says twenty-four months in general, and twelve months for a listed security, a Unit Trust of India unit, a unit of an equity-oriented fund or a zero-coupon bond (section 2(101), Income-tax Act 2025).

The text of the 2024 Act that we reviewed amends rates and holding periods. We did not find in it any change to the loss set-off rules themselves. The set-off sections below are not rate-dependent: they decide which gain a loss can reduce, not how much tax that gain attracts.

## Step 1: loss against gain in the same year

The set-off rule for capital gains is in section 108(2) of the Income-tax Act, 2025.

- A short-term capital loss is set off against income computed for any other capital asset for that year. That means short-term gains and long-term gains.
- A long-term capital loss is set off only against long-term capital gains on any other long-term asset for that year.

So a short-term loss is flexible. A long-term loss is not. A long-term loss cannot reduce a short-term gain.

Example. In a year you have a short-term loss of ₹2 lakh on a share, a short-term gain of ₹1 lakh on another share, and a long-term gain of ₹3 lakh on a property. Under section 108(2)(a) the short-term loss can be set off against both gains. A long-term loss of ₹2 lakh in the same year could only be set off against the ₹3 lakh long-term gain.

The order in which you apply a short-term loss across the gains is a computation choice for your CA. Keep the working on file.

## Step 2: capital loss against other income

You cannot use a capital loss against salary, business income, rent or interest. Section 109(2), Income-tax Act 2025, says the loss under the head "Capital gains" shall not be set off against income under any other head. Capital losses stay inside capital gains.

The reverse is different. Section 109(1) allows a loss under other heads to be set off against "Capital gains" income, subject to its conditions. A business loss cannot be set off against salary, and a house property loss is limited to ₹2,00,000 against any other head (section 109(1)(a) and (b), Income-tax Act 2025). Those are loss-from-other-heads rules and do not help a capital loss.

## Step 3: carry forward what is left

If the loss cannot be fully set off in the year, section 111(1), Income-tax Act 2025, lets you carry it forward to the following tax year, and so on. The type of loss survives the carry-forward:

- A short-term loss carried forward is set off only against capital gains on any other capital asset in later years.
- A long-term loss carried forward is set off only against long-term capital gains on any other long-term asset in later years.

There is a time limit. No loss can be carried forward under section 111 for more than eight tax years immediately succeeding the tax year in which the loss was first computed (section 111(2), Income-tax Act 2025).

## The return condition

This is where many people lose a valid loss. Section 121, Income-tax Act 2025, says that no loss which has not been determined in pursuance of a return filed under section 263(1) shall be carried forward and set off under section 111(1) (and the other carry-forward sections it lists). Section 80 of the 1961 Act is the earlier counterpart (mapped to section 121).

Under the 1961 Act, which governs financial year 2025-26, the return side is in section 139(3): a person who has sustained a loss under "Profits and gains of business or profession" or "Capital gains" and claims that it be carried forward under, among others, section 74(1) or (3) may furnish a return of loss within the time allowed under section 139(1) (section 139(3), Income-tax Act 1961, as amended). The same practical point applies in both Acts: report the loss in a return filed in time.

Section 263(1)(a)(viii), Income-tax Act 2025, requires a return from a person who has sustained a loss under "Profits and gains of business or profession" or "Capital gains" and who intends to claim that the loss be carried forward. Section 263(1)(a) says the return is to be furnished on or before the due date. So:

- File the return even if your income is below the tax-free limit, when you want the capital loss to carry forward.
- File it by the due date for your category: section 263(1)(a) of the 2025 Act says "on or before the due date", and section 139(3) of the 1961 Act refers to the time allowed under section 139(1). Whether a late return still preserves the carry-forward depends on provisions we have not set out here, so check your due date and position with your CA before the date passes.
- Report the loss in the capital gains schedule, so the department's record shows it.

## A worked carry-forward

Suppose, in tax year 2026-27 (so under the Income-tax Act, 2025), you have a long-term loss of ₹4 lakh on a property and no long-term gain that year. The loss cannot touch your salary (section 109(2)). It is carried forward under section 111(1)(a)(ii). In a later year you book a long-term gain of ₹6 lakh on listed shares. You set the ₹4 lakh against that gain, so only ₹2 lakh is taxed. Had you waited past the eighth succeeding tax year, the loss would have lapsed (section 111(2)). Either way, the carry-forward works only if the original loss was reported in a return filed under section 263(1).

## What not to do

- Do not set a long-term loss against a short-term gain. The law does not allow it.
- Do not set a capital loss against salary or business income.
- Do not assume you can skip the return because there is no tax to pay.
- Do not mix this with crypto or F&O losses. Those have their own rules and are outside this article.
- Do not rely on the old three-year holding period. After 23 July 2024 the general test is twenty-four months, and twelve months for listed securities.

## What to do now

0. Identify the year. A loss from sales up to 31 March 2026 belongs to financial year 2025-26 and the Income-tax Act, 1961; a loss from sales from 1 April 2026 belongs to tax year 2026-27 and the Income-tax Act, 2025.
1. List every sale this year and mark each as short-term or long-term using section 2(101) of the Income-tax Act, 2025 (twelve months for listed securities, twenty-four months otherwise).
2. Net the gains and losses under section 108(2): short-term losses first against any gain, long-term losses only against long-term gains.
3. Any remaining loss can be carried forward for up to eight tax years (section 111(2)). Note the year of origin.
4. File the return under section 263(1) by its due date, with the loss reported (section 121 and section 263(1)(a)(viii)).

Have a CA review your facts before you act or file. That matters most if the loss belongs to financial year 2025-26, where the 1961 Act wording should be checked against the Act as amended.

## FAQs

**Which Act applies to my loss from financial year 2025-26?**
The Income-tax Act, 1961 governs assessment year 2026-27 (financial year 2025-26); the Income-tax Act, 2025 applies from tax year 2026-27 (sections 1(3) and 536, Income-tax Act 2025). Section 74 of the 1961 Act corresponds to section 111 of the 2025 Act. Have the 1961 text checked for the year you are filing.

**Can I set off a long-term capital loss against short-term capital gains?**
No. Section 108(2)(b), Income-tax Act 2025, allows a long-term loss to be set off only against long-term capital gains.

**Can a short-term capital loss be set off against long-term capital gains?**
Yes. Section 108(2)(a) allows a short-term loss to be set off against income computed for any other capital asset, which includes long-term assets.

**Can I use a capital loss against my salary?**
No. Section 109(2), Income-tax Act 2025, says a loss under the head "Capital gains" shall not be set off against income under any other head.

**For how long can I carry forward a capital loss?**
For no more than eight tax years immediately succeeding the tax year in which the loss was first computed (section 111(2), Income-tax Act 2025).

**Do the July 2024 rate changes affect how losses set off?**
The Finance (No. 2) Act, 2024 changed rates and holding periods for transfers on or after 23 July 2024. We found no change to the set-off rules in the text we reviewed.

**What if I did not file a return in the year of loss?**
Section 121, Income-tax Act 2025, says a loss not determined in a return filed under section 263(1) cannot be carried forward and set off under section 111(1). Speak to your CA about what is possible for your case.

Canonical: https://www.harunraaj.com/blog/capital-loss-set-off-after-2024