Capital Loss Set-Off Planner — Tax Year 2026-27
Enter this year’s capital gains and losses, and any losses brought forward. The planner sets losses off in the order that saves the most tax within the rules of sections 108 and 111, and shows what carries forward.
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The rules the planner follows
| Rule | Provision |
|---|---|
| A short-term capital loss can be set off against any capital gain, short-term or long-term | Section 108(2)(a) |
| A long-term capital loss can be set off only against long-term capital gains | Section 108(2)(b) |
| A capital loss cannot be set off against salary or any other head | Section 109(2) |
| Unabsorbed capital losses carry forward for up to eight tax years, with the same short-term and long-term restriction | Section 111 |
| A loss can be carried forward only if it was determined in a return filed by the due date | Section 121 |
| Losses brought forward from years under the Income-tax Act, 1961 carry forward in the manner of that Act, within eight years of the year first computed | Section 536(2)(n) |
The Act does not prescribe an order among the gains a short-term loss is set against. The planner uses that freedom: it applies losses to the gains taxed at the highest rate first, uses long-term losses on long-term gains before spending short-term losses there, and only then lets losses fall on gains within the ₹1,25,000 section 198 exemption. This year’s losses are set off before losses brought forward.
Assumptions this calculator makes
- Your other income already exceeds the basic exemption limit, so no shortfall adjustment applies.
- Surcharge is ignored; tax figures include 4% cess. For high incomes, use the surcharge and marginal relief calculator.
- Losses brought forward are treated as one pool. If you have losses from several years, use the oldest first, because they expire first.
- Set-off against gains within the ₹1,25,000 exemption is shown because the Act makes set-off compulsory once other gains are exhausted; it saves no tax.
Worked example
Short-term gain on listed shares ₹1,00,000; long-term gain on equity funds ₹2,50,000; short-term loss ₹60,000; long-term loss ₹1,80,000 (these are the planner’s default figures).
- The long-term loss can only go against the long-term gain: ₹1,80,000 of the ₹2,50,000 is absorbed, leaving ₹70,000, which is within the ₹1,25,000 exemption.
- The short-term loss is best used against the 20% short-term gain, leaving ₹40,000 taxable: ₹8,000 tax plus ₹320 cess.
Spending the short-term loss on the long-term gain instead would leave ₹20,800 of tax. The full walk-through is in capital loss set-off and carry forward under the 2025 Act.
Frequently asked questions
Can a long-term capital loss reduce short-term gains?
No. Section 108(2)(b) allows a long-term capital loss to be set off only against long-term capital gains, in the same year or in later years.
Can I set a capital loss against my salary?
No. Section 109(2) bars setting off a loss under the head Capital gains against any other head of income.
How long can capital losses be carried forward?
For eight tax years after the year in which the loss was first computed, and only if the return for the loss year was filed by the due date.
Can I choose not to use a loss this year?
No. Set-off in the year is not optional, but you can choose which gains a short-term loss is set against. This planner makes that choice to minimise tax.
Does the ₹1.25 lakh exemption apply before or after set-off?
After. Losses reduce the section 198 gain first, and only the remaining gain above ₹1,25,000 is taxed.
Sources
Income-tax Act, 2025, sections 108, 109, 111, 121, 196, 197, 198 and 536, Gazette of India, 21 August 2025.
General educational tool for tax year 2026-27, not tax advice. Results depend on the assumptions stated above.
The concept behind the number
This calculator gives you a figure. These pages explain the rules behind it and work through the decisions.