How stock market traders can reduce their capital gains tax even under new tax regime at the time of ITR filing

Stock market traders and investors can significantly reduce their capital gains tax by taking advantage of the set-off and carry-forward of loss concept, even under the new tax regime. However, to utilise this concept, you first need to understand what type of stock market income qualifies for it. Stock market trading can encompass equity intraday trading, delivery based trading of equity shares, and even both speculative and non-speculative futures and options (F&O) trading.

Check out the rules for different types of stock market trading below.

Stock market traders can save tax using set-off and carry-forward rules

Chartered Accountant Niyati Shah, Vertical Head - Personal Tax at 1 Finance, explains: "Losses from stock trading don’t vanish, they can be your tax-saving tools, provided they’re reported right. Under both the tax regimes, set-off and carry-forward of losses is allowed. However, one must file the ITR within the due date under Section 139(1) to avail this. While the new regime restricts most exemptions and deductions, it retains the core provisions for adjusting current-year losses and carrying forward the business and capital losses for up to 8 years. This is particularly relevant for those engaged in stock market trading, especially F&O and intraday, who report such income as business income and may incur operational losses."

According to Shah stock trading income is taxed based on nature of trade:

• F&O Trading: Treated as non-speculative business income. Losses can be set off against any income except salary and carried forward for 8 years.
• Intraday Trading: Classified as speculative business income. Losses can only be set off against speculative gains and carried forward for 4 years.
• Delivery-based Trading: Treated as capital gains or business income (based on frequency and intent). Short-term capital losses can be set off against both short- and long-term gains; long-term capital losses can only be set off against long-term gains. Both are carried forward for 8 years.

Chartered Accountant (Dr.) Suresh Surana, explains the rules of set-off and carry-forward using a table:

Source: CA Suresh Surana

Intra head set-off means you can set-off within the same heads of income like loss from capital gains can be set-off only with capital gains and no other income.

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For how many years can you carry-forward and set-off losses?

The rules are different for speculative and non-speculative stock market incomes. For non-speculative F&O income, the loss can be carried forward for up to eight assessment years. For speculative intraday trading, the loss can be carried forward for up to four assessment years.

Surana explains:

• Under the new tax regime under Section 115BAC of the Income-tax Act, 1961, set-off and carry-forward of losses arising from stock market trading is permissible, subject to the nature of the trading activity.
• Where the trading activity is considered as a non-speculative business such as delivery-based trading carried on in the course of business, losses incurred can be set off against income from any head, including capital gains and income from other businesses (but not against salary income).
• Unabsorbed losses, if any, may be carried forward for up to 8 assessment years, provided the return of income is filed within the prescribed time and the tax audit requirements, where applicable, are duly complied with.
• On the other hand, speculative income, such as that arising from intraday equity trading, is treated as income from speculative business. Losses from speculative business can be set off only against other speculative income in the same year.
• They cannot be adjusted against any other heads of income. However, such speculative losses may be carried forward for 4 assessment years and can only be set off against speculative income in those years, subject to timely filing of the return.

Long term capital loss can’t be set-off against long term capital gains

Surana explains:

• Where the stock market trading income in securities constitutes "Capital Gains," the set-off and carry-forward treatment will follow the capital gains rules. Accordingly, Short-term capital losses (STCL) can be set off against both short-term and long-term capital gains, while long-term capital losses (LTCL) are restricted to being set off only against long-term capital gains. Both categories of capital losses can be carried forward for a maximum of 8 assessment years.

New tax bill 2025 introduces a one-time relief measure for short-term and long- term capital loss

The Income-tax Bill, 2025 introduced a transitional one-time relief. It allows taxpayers to set off accumulated short-term and long-term capital losses, as on March 31, 2026, against any form of capital gains (short-term or long-term) under the new regime.

Surana says: “This set-off will be permitted for 8 assessment years commencing from Tax year 2026–27.”