In India, stock market losses can be tax-deductible under certain conditions. Stock market losses can be set off against any capital gains made in the same financial year. This is known as “Capital Loss Set Off.” There are two types of capital gains: Short-Term Capital Gains (STCG) and Long-Term Capital Gains (LTCG).
The set-off rules are as follows:
- Short-Term Capital Loss (STCL): If you incur a loss by selling shares or equity-oriented mutual funds within one year of purchase, it is considered as STCL. STCL can be set off against both STCG and LTCG. You can set off the entire STCL against any capital gains made in the same financial year.
- Long-Term Capital Loss (LTCL): If you incur a loss by selling shares or equity-oriented mutual funds after holding them for more than one year, it is considered as LTCL. LTCL can only be set off against LTCG. You can set off the entire LTCL against any LTCG made in the same financial year.
If your total capital losses (STCL and LTCL) exceed your total capital gains (STCG and LTCG) in a financial year, the remaining losses can be carried forward to the subsequent eight assessment years. These losses can be set off against future capital gains during these years.
It’s essential to maintain proper records of your capital gains and losses, including the dates of acquisition and sale, as well as supporting documents such as contract notes, to claim tax deductions accurately.
It’s advisable to consult with a qualified tax professional or chartered accountant to understand the specific tax implications and deductions related to your individual financial situation and stock market transactions. Tax laws may change, so staying updated with the latest regulations is crucial.