Jigar M. Patel
International Tax Attorney
As the fiscal year 2025-26 is drawing near to its end, capital market investors are wondering about the roller-coaster ride of the BSE Sensex, which took a close to 17% hi-lo swing during the year, from a low of 71,425 in April, 2025 to a high of 86,159 in December, 2025. The market has again dipped to 74,532, reeling under the pressure and uncertainty caused by the Gulf-war.
Enjoy Tax Saving Breaks from both Gains & Losses
While taxpayers should indeed look at tax planning opportunities as they garner profits from market gains, they also need to explore meaningful tax saving breaks that can be enjoyed through strategic reaping of losses. While we discuss today some smart ideas to deal with losses, let us first learn the tax rules in this regard.
Tax Treatment of Capital Losses
The Income-tax Act provides a structured framework for the set-off and carry forward of losses under various heads of income. The key provisions governing capital losses are as follows:
- Long-Term Capital Loss (LTCL):Can be set off only against Long-Term Capital Gains (LTCG) of the same year and not against any other income.
- Short-Term Capital Loss (STCL):Can be set off against both Short-Term Capital Gains (STCG) and LTCG of the same year, but not against any other income.
- Carry Forward of Losses:Unabsorbed LTCL or STCL can be carried forward for up to 8 assessment years and set off against eligible capital gains in subsequent years.
Reaping Tax Gains through Strategic Portfolio Churning
2025-26 has been a typical year, where market investors have earned capital gains, both long-term and short-term, early during the year. However, their portfolio values have dipped under the current market conditions. In fact, this is the right time to plan some strategic portfolio churning.
A smart taxpayer can sell a script acquired at a higher value, but currently in a lower price range and thus book a loss. Since the share script is enjoying good fundamentals, the taxpayer would not want to lose the same. He can immediately decide to repurchase the same, which would ensure that there is no real or effective loss in value terms. In case of a taxpayer, having multiple tax entities in his family, he can plan to avail maximum tax benefits.
Playing the 20 / 30 Game
As referred above, the Income-tax Act permits set off of any short-term capital loss against any short-term or long-term capital gain. There is no restriction in regard to the nature of such loss. This freedom can be usefully availed by playing the game 20 / 30, as will be evident from the case study below.
Case Study: Amdavadi has earned STCG of Rs. 20 lakhs on sale of gold during FY 2025-26, which attracts tax at the rate of 30%, in view his being in the top tax bracket. If through churning of his equity portfolio, he can generate STCL of Rs. 20 lakhs (though being in the 20% tax rate basket governed by Section 111A) he can reap an effective extra tax saving of 10%.
Make Most of your Rs. 1.25 lakhs LTCG Exemption
The Rs. 1.25 lakhs LTCG exemption u/s. 112A in respect of LTCG from listed equity shares and/or units guarantees an annual tax benefit worth Rs.16,250 (13% of 1,25,000), which should not be allowed to lapse. Even if a taxpayer does not wish to actually sell any of his shares during the financial year, he can plan to sell and rebuy (thus not disturbing his portfolio composition) to the extent that he reaps the tax-free gain of Rs. 1,25,000. Through this strategy, he would ensure that he books a tax-shelter for future, by raising his cost of acquisition to that extent now.
