FY23-24: Do You Have Losses from Trading? Here Are the Set-Off and Carry Forward Provisions

Could I offset my trading loss with the profits I earned on my long-term stocks and mutual funds holdings? What are the set-off rules for trading loss?

Let’s first understand how income from different transactions is classified. F&O trading is classified as a non-speculative business, while intraday trading is treated as a speculative business. Further, profits earned from stocks or mutual funds are considered as capital gains. Now, let’s talk about the rules for setting off trading losses.

Non-speculative losses, like those from F&O trades, can be offset against any other income head except salary income in the same financial year. This includes capital gains from stocks and mutual funds. So, you can set off your trading loss with the capital gains on stocks and mutual funds.

Remember, speculative or intraday losses can only be offset against other intraday profits.

In the table below, we mention the set-off and carry-forward rules for capital gains and business income.

Can you explain how to carry forward the losses from trading?

Your trading losses will first be adjusted against incomes in the current year, and the remaining losses (if any) are carried forward to subsequent years. Remember that F&O losses can be carried forward for up to 8 years, while those from intraday trading can only be carried forward for up to 4 years.

Carry-forward losses become brought-forward losses for the next year. These brought-forward losses from F&O can be offset against any kind of business income in the subsequent years, including both speculative and non-speculative business profits. On the other hand, intraday losses can be used to offset other intraday profits in future years.

For example, say you have short-term capital gains of ₹1L and face a loss of ₹3L from F&O. You can offset this loss against your capital gains, reducing your net taxable gains to zero. The remaining losses of ₹2L will be carried forward to the next year. As mentioned previously, once carried forward, F&O losses can only be set off against business income (both intraday and F&O). Hence, if you have F&O profits of ₹2L in the next year, your brought-forward losses will be adjusted, and your taxable profits will become zero.

I incurred trading losses last year but did not file my income tax return for that year. Can I use the carry-forward provision to claim the tax benefits?

A. In order to carry forward your losses, you need to file the ITR before the due date, which is 31st July of the respective assessment year. If you fail to do so, you cannot carry forward the losses.

PS: If you have any tax queries, comment below, and we will get them answered.

The above questions are answered by Surbhi Pal from Quicko. This is for informational purposes only. Consult your tax expert for individualized advice.