New Tax Relief: One-Time Set-Off of Long-Term Capital Losses Against Short-Term Gains from FY 2026-27

Long-Term Capital Losses

New Tax Relief: One-Time Set-Off of Long-Term Capital Losses Against Short-Term Gains from FY 2026-27

Long-Term Capital Losses

The Income Tax Bill, 2025, has introduced a landmark transitional provision that could bring substantial tax relief to investors and individual taxpayers. For the first time, long-term capital losses (LTCL) incurred up to March 31, 2026, will be eligible to offset short-term capital gains (STCG) starting FY 2026-27.

This one-time window of opportunity, enabled under Clause 536(n) of the new bill, presents a powerful capital gains planning strategy before the new law takes full effect.

What Has Changed?

Under the current Income Tax Act, 1961, Section 74 restricts the set-off of LTCL only against LTCG. This narrow rule has long limited the ability of taxpayers to effectively utilize long-term losses — especially when their gains are largely short-term in nature.

But the new Income Tax Bill changes this — temporarily but significantly.

Long-Term Capital Losses

Key Highlights of Clause 536(n)

Brought forward capital losses, whether long-term or short-term, computed under the old Act and remaining as of March 31, 2026, can be:

  • Set off against any type of capital gains (LTCG or STCG) under the new Act.

  • Carried forward and adjusted for up to eight financial years (i.e., till FY 2033-34).

🔍 This transitional clause removes the old distinction between STCG and LTCG — but only for pre-April 2026 losses.

Why This Matters for Taxpayers

This one-time measure could be a game changer for those who:

  • Hold unutilized long-term capital losses due to a mismatch with LTCG.

  • Are expecting short-term capital gains in the years ahead and want to reduce their capital gains tax.

  • Missed prior opportunities to optimize their loss harvesting due to rigid pairing rules under the 1961 Act.

The provision permits the set-off of any capital loss — whether long-term or short-term — brought forward as on March 31, 2026, against any capital gains under the new Income Tax Bill, 2025, without differentiating between short- or long-term gains.

Action Plan: Capital Gains Tax Planning Before April 1, 2026

Taxpayers should treat this as a tax planning alert and take the following steps before March 31, 2026:

✅ Review Capital Assets: Identify long-term investments that have declined in value.

✅ Consider Selling Loss-Incurring Assets: Book long-term losses by selling such assets before April 1, 2026.

✅ Document and Report: Ensure proper computation and carry-forward of losses under the 1961 Act.

✅ Plan Future Gains Timing: Align potential STCG after FY 2026-27 to absorb these carried forward LTCL.

This strategy can help minimize tax liability from FY 2026-27 through FY 2033-34.

Why This Is a One-Time Relief

This provision is not a permanent change. It is part of the Repeal and Saving mechanism built into the new tax code to smooth the transition from the old regime.

  • Post-April 1, 2026 losses will continue to follow the traditional rules under the new Income Tax Bill.

  • The clause ensures temporary flexibility for existing losses, not a structural overhaul of capital gains taxation.

Some commentators view it as forward-thinking tax reform, while others raise concerns about consistency with broader tax principles. However, for now, it stands as a valuable tool in the taxpayer’s arsenal.

Final Thoughts: Don’t Miss the Window

The new Income Tax Bill, 2025, offers a rare and limited-time opportunity to reset your capital gains tax planning. By utilizing this one-time set-off provision under Clause 536(n), taxpayers can unlock significant savings and efficiently absorb past investment losses.

Read More: Understanding Form 15CA and 15CB: Your Guide to Foreign Remittance Compliance

What You Should Do Next

  • 📊 Re-evaluate your capital loss history

  • 📅 Act before March 31, 2026

  • 👩‍💼 Consult with your tax advisor for tailored strategies

  • 📈 Plan your future gains with carry-forward optimization in mind

⚠️ This relief is time-bound. Use it wisely before the sunset date, and turn your past losses into future tax gains.

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Agricultural Land Sale: How to Optimize Tax Benefits

Agricultural Land

Selling Agricultural Land? Here’s How to Save Capital Gains Tax Legally

Agricultural Land

The sale of agricultural land, particularly near urban areas, can lead to substantial capital gains. While agricultural income itself is exempt under the Income-tax Act, 1961, the sale of such land may not always enjoy the same treatment—especially when it qualifies as a capital asset. The good news? With the right tax planning, you can legally save tax on these gains by leveraging specific exemptions under the Act.

Is Agricultural Land a Capital Asset?

Understanding whether your land qualifies as a capital asset is key to determining its tax implications.

✅ Not a Capital Asset – Exempt from Tax

Rural agricultural land in India is not considered a capital asset if it meets the following conditions:

  • It is situated beyond 8 km from the limits of a municipality or cantonment board.

  • The population of the local area is below the specified threshold.

➡️ Sale of such land is entirely exempt from capital gains tax.

(Refer to Section 2(14) of the Income-tax Act for the full definition of a capital asset.)

Agricultural Land

❌ Capital Asset – Taxable

If the agricultural land is located in an urban area, it qualifies as a capital asset, and any gain from its sale becomes taxable under capital gains provisions.

What is Long-Term Capital Gain (LTCG) on Agricultural Land?

If urban agricultural land is held for more than 24 months, any profit from its sale is classified as Long-Term Capital Gain (LTCG).

  • Tax Rate: LTCG is taxed at 20% with indexation benefits.

  • Alternative Option: A concessional tax rate of 12.5% without indexation is also available under certain conditions.

📌 Choosing between these options requires careful comparison based on your cost of acquisition and inflation adjustments.

How to Save LTCG Tax on Sale of Agricultural Land

The Income-tax Act offers multiple exemptions to help reduce or eliminate tax liability from LTCG. Here are the main options:

🔹 Section 54B – Reinvestment in Agricultural Land

This section is specifically designed for farmers and individuals selling agricultural land to buy new agricultural land.

Conditions:

  • The land sold must have been used for agricultural purposes by the individual or their parents in the two years immediately preceding the sale.

  • The seller (individual or HUF) must purchase new agricultural land (urban or rural) within 2 years of the sale.

  • The new land should not be sold within 3 years.

Capital Gains Account Scheme (CGAS): If the purchase is not completed before the due date of filing the ITR, deposit the capital gains in a CGAS account before the due date under Section 139(1) to retain exemption eligibility.

Exemption Limit: Lower of the capital gain or the amount invested in the new land.

📌 Important Note: The new land can be either urban or rural—location is not a restriction under Section 54B.

🔹 Section 54F – Investment in Residential Property

If the land does not qualify for exemption under Section 54B (e.g., it wasn’t used for agriculture), Section 54F offers another route.

Conditions:

  • Invest the net sale consideration in one residential house in India within 2 years (or construct within 3 years).

  • The seller must not own more than one residential house (excluding the new one) on the date of the sale.

🔹 Section 54EC – Investment in Capital Gain Bonds

For those who do not wish to reinvest in land or residential property, Section 54EC allows investment in specified bonds.

Key Features:

  • Invest the capital gains (not the entire sale value) in NHAI or REC bonds within 6 months of sale.

  • Maximum investment limit: ₹50 lakhs.

  • Lock-in period: 5 years.

Agricultural Land

🔹 Capital Gains Account Scheme (CGAS)

If you’re unable to reinvest the capital gains before filing your return:

  • Deposit the gains in a Capital Gains Account Scheme before the due date.

  • This ensures you remain eligible for exemption under Sections 54B, 54F, or 54EC, even if reinvestment is delayed.

Read More: Tax Regime Dilemma: Old vs New for FY 2025-26

With careful planning and a solid understanding of the tax provisions, you can legally save capital gains tax on the sale of agricultural land. Sections 54B, 54F, and 54EC provide flexible reinvestment options, depending on your circumstances and financial goals.

To make the most of these provisions and ensure compliance, it’s always best to consult a Chartered Accountant or tax expert. They can help you structure your transactions, file the correct returns, and avoid unnecessary tax outflows.

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ITAT Allows Set-Off of Short-Term Capital Loss Against Long-Term Capital Gains: A Relief for Taxpayers

short-term

ITAT Allows Set-Off of Short-Term Capital Loss Against Long-Term Capital Gains: A Relief for Taxpayers

short-term

In a landmark judgment, the Income Tax Appellate Tribunal (ITAT) has upheld the right of taxpayers to engage in legitimate tax planning, allowing the set-off of short-term capital losses against long-term capital gains (LTCGs). This decision provides significant relief to stock market investors who often face intense scrutiny during tax assessments.

Case Overview

The case in question pertains to the financial year 2015-16, where a taxpayer incurred a short-term capital loss of ₹9.14 crore from the sale of Mindtree shares. The taxpayer set off this loss against a long-term capital gain of ₹16.81 crore from selling shares of Avendus Capital Pvt Ltd. However, the income tax assessing officer disallowed the claim, reclassified the short-term capital loss as long-term capital gain, and added it back to the taxpayer’s income.

The officer alleged that the taxpayer strategically sold Mindtree shares following a significant drop in their price after a bonus announcement, terming the move a “colourable device” to reduce tax liability. Despite these claims, the taxpayer appealed the decision, leading to a favorable ruling by the Commissioner of Appeals. The Revenue Department then escalated the matter to the ITAT.

short-term

ITAT's Ruling

The ITAT, led by Vice-President Saktijit Dey and Accountant Member Amarjit Singh, dismissed the department’s appeal and ruled in favor of the taxpayer. The tribunal emphasized that the transactions were genuine and there was no evidence to suggest otherwise.

The tribunal stated:

“When the transactions relating to purchase and sale of shares are beyond doubt and are not in the nature of sham transaction, the short-term capital loss derived by the assessee from the sale of shares cannot be prevented from being set off against the long-term capital gain by alleging adoption of a colourable device. Taxpayers are not obligated to pay more tax if they arrange their affairs within the legal framework.”

The ITAT noted that the assessing officer had accepted the computation of short-term capital loss in subsequent assessments for the years 2017-18 and 2018-19. This consistency further validated the genuineness of the taxpayer’s claims.

Significance of the Judgment

This ruling reinforces the distinction between legitimate tax planning and tax evasion. Taxpayers can arrange their financial affairs to minimize tax liability as long as they operate within the bounds of the law.

The tribunal also referenced a previous decision by the Hon’ble Jurisdictional High Court in PCIT vs. Cyrus Poonawalla to support its findings.

Key Takeaways for Taxpayers

  • Legitimate Tax Planning is Permissible: Taxpayers have the right to plan their finances within the legal framework to reduce tax liability.
  • Genuine Transactions are Protected: Authorities cannot disallow claims without concrete evidence questioning the authenticity of transactions.
  • Relief for Stock Market Investors: This ruling clarifies the treatment of capital losses and gains, offering clarity and relief to investors.

Read More: Section 115BAC: A Refined Taxation Framework for Individuals and HUFs

The ITAT’s decision underscores the importance of adhering to legitimate and transparent financial practices. It serves as a reminder that while tax authorities have the power to assess transactions, they must do so based on evidence rather than presumptions.

This ruling is a welcome development for investors and taxpayers alike, reaffirming their right to legitimate tax planning.

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