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Long-Term Capital Losses (LTCL) incurred up to March 31, 2026, Setoff against any Short-Term Capital Gains (STCG)

 

What is the key change introduced by the New Income Tax Bill, 2025 regarding capital losses?

The New Income Tax Bill, 2025 introduces a notable one-time relief permitting taxpayers to offset brought forward Long-Term Capital Losses (LTCL) incurred up to March 31, 2026, against any Short-Term Capital Gains (STCG). This represents a significant shift from the existing rules, which only allowed LTCL to be set off against Long-Term Capital Gains (LTCG).

When will this new provision for setting off LTCL against STCG be applicable?

This provision is anticipated to be effective from April 1, 2026, corresponding to the tax year 2026-27 and subsequent years.

How does the proposed change differ from the existing Income Tax Act, 1961 rules for capital loss set-off?

Under the current Income Tax Act, 1961 (Section 74), Long-Term Capital Losses (LTCL) could only be carried forward and set off against Long-Term Capital Gains (LTCG). Conversely, the new bill permits LTCL incurred until March 31, 2026, to be set off against any capital gains, including STCG, for tax years commencing on or after April 1, 2026.

What is the specific clause in the New Income Tax Bill, 2025 that permits this set-off?

The provision allowing the set-off of brought forward LTCL against future capital gains (including STCG) from tax year 2026-27 onwards is stipulated under clause 536 (n) of the Income Tax Bill, 2025.

What is the potential impact of these changes for individual taxpayers?

These modifications offer temporary relief and substantial tax planning opportunities for taxpayers. They facilitate the faster utilization of accumulated long-term capital losses by enabling them to be offset against short-term capital gains, potentially resulting in reduced overall capital gains tax liability and improved cash flow management during the initial years of the transition to the new tax regime.

Can taxpayers utilize this new set-off provision for tax planning?

Indeed, experts suggest that taxpayers can leverage this provision for tax planning, particularly for the financial year 2026-27 onwards. One recommended strategy includes selling investments likely to incur long-term losses before April 1, 2026, allowing these losses to be offset against future short-term capital gains under the new rule.

Why is this set-off provision for LTCL against STCG considered a one-time measure?

This provision is deemed a one-time measure as it is included under the 'Repeal and Saving' clause (clause 536 (2)(n)) of the new tax bill. 'Repeal and Saving' clauses are typically employed to preserve certain rights or obligations from old legislation when it is superseded by new legislation, ensuring a smooth transition. While some view this as a deliberate dispensation, others may perceive it as an oversight given it contradicts established provisions for losses incurred after April 1, 2026.

Will long-term capital losses incurred after April 1, 2026, also be allowed to be set off against STCG under the new bill?

No, the proposed new Income Tax Bill, 2025 continues the restriction for LTCL incurred after April 1, 2026. Such losses will still only be permitted to be set off against Long-Term Capital Gains (LTCG), similar to the current provisions under the Income Tax Act, 1961. The temporary dispensation applies solely to LTCL brought forward from before March 31, 2026.


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