Tax-Loss Harvesting for Indian Traders (2026): Realising Losses Before March 31
Note: This is general information, not tax advice, and tax rules change. Verify the current figures against the Income Tax Act, the relevant Finance Act and ICAI guidance, and confirm your own position with a qualified Chartered Accountant.
The basic idea
If you have a position sitting at a paper loss and you expect to make a capital gain or business profit before year-end, realising the loss before March 31 allows you to reduce the taxable gain. You close the losing position, book the loss, and then repurchase if you still want the exposure.
The strategy works because taxes are computed on realised, not unrealised, positions. A paper loss has no tax value until you sell. A realised loss has set-off value against the current year's gains, and carry-forward value for up to 8 years if unused.
The set-off grid: what can offset what
The Income Tax Act is specific about which losses can set off against which gains. The grid for traders:
F&O losses (non-speculative business): can set off against capital gains, rental income, business income from other non-speculative heads, and interest income in the same year. Cannot set off against salary.
Intraday equity losses (speculative business): can set off only against other speculative gains. Cannot set off against F&O profits, capital gains, or any other head.
STCG losses from equity: can set off against both STCG and LTCG gains from any capital asset. Cannot set off against business income.
LTCG losses from equity: can set off only against other LTCG gains. Cannot set off against STCG or any business income.
No wash-sale rule: the repurchase is clean
Unlike the US, India has no statutory rule that disallows a loss when the same security is repurchased within 30 days. You can sell a stock to book the loss and buy it back the next trading day without the loss being invalidated.
One provision to be aware of: Section 94(7) disallows losses on units bought within 3 months of a record date for a dividend or distribution and sold within 9 months of the record date. This is a specific anti-avoidance rule for dividend-stripping in mutual funds, not a general wash-sale rule. Most stock repurchase scenarios fall outside it.
If the transactions are between related parties or are purely circular without economic substance, the General Anti-Avoidance Rule (GAAR) can be applied. Genuine market transactions on recognised exchanges are not affected.
Practical examples
Example 1: F&O loss against LTCG. You have โน3 lakh in LTCG from a stock sold in October. You also have an open F&O position sitting at a โน2 lakh paper loss. If you close the F&O position before March 31, the โน2 lakh non-speculative loss can set off against your โน3 lakh LTCG. Your net LTCG becomes โน1 lakh, which falls within the โน1.25 lakh exemption, resulting in nil LTCG tax. You save roughly โน12,500 in LTCG tax.
Example 2: STCG equity loss against F&O profit. You have โน5 lakh in F&O profit and โน2 lakh in paper losses on delivery equity. The delivery loss, if realised before March 31, becomes an STCG loss. STCG losses cannot set off against F&O business income. This scenario does not work. The capital loss and business income stay separate.
Example 3: Intraday loss against intraday gain. You have a profitable intraday month and a losing position open in another scrip. Closing the loser before year-end creates a speculative loss that reduces your speculative gain. This works, within the speculative-vs-speculative boundary.
Carry-forward: the tax value extends beyond the current year
If your losses exceed this year's gains and cannot all be absorbed, the unused portion carries forward:
F&O (non-speculative) losses: 8 assessment years, set off against future business income. Intraday (speculative) losses: 4 assessment years, set off against future speculative gains. STCG losses: 8 assessment years, set off against future capital gains. LTCG losses: 8 assessment years, set off against future LTCG only.
Timing: what to check before March 31
In the last two weeks of March, review your open positions for:
Paper losses that could reduce a realised gain in the same year. The type of loss and the type of gain, to verify they can set off against each other. Whether you have already used up the gain against other losses earlier in the year. Whether you want to continue holding the position after realising the loss.
Aktai Tax shows your running P&L position across brokers throughout the year, not just at filing time. That makes it easier to see where you stand before the year closes. Check your position at Aktai Tax and use the report to confirm your set-off math with your CA before executing.
Frequently asked questions
Is tax-loss harvesting legal in India?
Yes. Realising a genuine loss before the end of the financial year and using it to reduce taxable gains is a legitimate tax planning strategy. The Income Tax Act sets clear rules for which losses can set off against which gains. Exploiting those rules within their terms is not avoidance.
Does India have a wash-sale rule like the US?
No. India has no statutory wash-sale rule that disallows a loss when the same security is repurchased within a specified window. You can realise a loss by selling and then repurchase the same stock the next day. However, if the transaction lacks genuine substance (a circular trade between related parties), it may be challenged under the GAAR provisions or Section 94 provisions.
Can I use an F&O loss to reduce my salary income?
Partly. F&O losses (non-speculative business losses) can set off against any income head except salary in the same year. They cannot reduce your salary tax directly. They can, however, reduce capital gains, interest income, and other business income in the same year. Unabsorbed F&O losses carry forward for 8 years against future business income.
What is the deadline to realise a loss for it to count in the current year?
The loss must be realised (the trade must be executed and settled) on or before March 31 of the financial year. A trade executed in March but settled in April counts in April.