Tax planning guides Using capital losses
Turn Investment Losses into Tax Savings
A loss on a mutual fund can reduce the tax on your gains, this year or for up to 8 years afterwards, as long as you book it and declare it in your tax return on time.
What can be set off against what
| Type of loss | Against short-term gains | Against long-term gains | Carry forward |
|---|---|---|---|
| Short-term capital loss | Yes | Yes | Up to 8 years |
| Long-term capital loss | No | Yes | Up to 8 years |
Capital losses cannot reduce salary, business or other income.
Worked example
You booked a ₹2 lakh short-term gain in Fund A, and Fund B shows a ₹1 lakh short-term loss on paper. Tax on ₹2 lakh at 20% plus cess is ₹41,600. If you redeem Fund B to book the loss, the net short-term gain falls to ₹1 lakh and the tax to ₹20,800. Reinvest to stay in the market.
Tax-loss harvesting each year
- Review booked gains and any holdings below cost in February.
- Redeem loss-making units to offset gains, short-term losses first.
- Reinvest in the same or a similar fund so you don't miss a recovery.
- Avoid buying and selling around dividend (IDCW) or bonus record dates; special anti-avoidance rules apply.
- Declare the loss in your return by the due date.
Please note: This guide is investor education, not tax or investment advice. Figures are illustrations using assumed returns and are not guaranteed. Tax rules shown apply for FY 2026-27 (tax rules as of September 2026) and can change; please confirm your own situation with a chartered accountant. Mutual fund investments are subject to market risks. Read all scheme-related documents carefully.
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