New Income tax invoice: Get one-time set off of long-term capital loss towards short-term capital features from tax yr 2026–27 – OXBIG NEWS NETWORK-OxBig News Network

A one-time tax reduction proposed beneath the brand new Income Tax Bill, 2025 might considerably cut back capital gains tax liabilities for a lot of particular person taxpayers. The new Income Tax invoice permits long-term capital losses (LTCL) incurred as much as March 31, 2026, to be set off towards any short-term capital gains (STCG) from tax yr 2026–27 onwards. This marks a key departure from the present provisions beneath the Income Tax Act, 1961, which solely permit LTCL to be set off towards long-term capital features (LTCG).The proposed change, present in Clause 536(n) of the brand new invoice, permits broader capital features tax planning and quicker loss absorption.“Under clause 536(n) of the new tax bill, 2025 any capital loss, whether long-term or short-term, computed under the old Income Tax Act, 1961 and brought forward as on 31 March 2026, may be set off and carried forward against ‘income under the head Capital gains’ under the new tax bill 2025. Notably, this provision does not draw a distinction between long-term and short-term capital gains for the purpose of set-off,” mentioned Chartered Accountant Dr Suresh Surana, in response to an ET report.What’s altering?Currently, beneath Section 74 of the Income Tax Act, 1961, long-term capital losses can solely be set off towards LTCG. This restriction restricted the pliability for taxpayers to handle losses.“Currently, the Income Tax Act, 1961 allows the set-off of brought forward LTCL only against LTCG, limiting taxpayers’ flexibility to offset LTCL with STCG,” mentioned Aseem Mowar, Tax Partner at EY India.However, as per the transitional provision within the new Income Tax Bill, this restriction is being eased — however solely briefly — for losses incurred as much as March 31, 2026.“The proposed new Income Tax Bill, 2025 continues this restriction for LTCL incurred after April 1, 2026, but the ‘Repeal and Saving’ clause in Section 536 (specifically 536(2)(n)) permits the set-off of LTCL incurred until March 31, 2026, against any capital gains under ITB 2025 for tax years starting on or after April 1, 2026, for up to eight financial years immediately succeeding the financial year in which such loss was first computed under the current Income Tax Act, 1961,” Mowar defined.Why it issuesThis one-time reduction can considerably cut back tax outgo for people who’ve accrued LTCL through the years and have struggled to match it with ample LTCG.“The transitional provision under Section 536(n)… carries significant implications for taxpayers holding accumulated capital losses, particularly long-term capital losses (LTCL), as on 31 March 2026,” Surana mentioned.“By permitting the set-off of such brought forward losses, whether long-term or short-term, against any form of capital gains… the legislation offers a temporary but meaningful departure from the restrictive loss-set-off rules under the current Income-tax Act, 1961.”It additionally opens the door for tax planning methods forward of FY 2026–27.“Taxpayers can sell investments likely to incur long-term losses before April 1, 2026, allowing them to offset these losses against future short-term capital gains,” Mowar added. “This dispensation, albeit temporary, allows taxpayers to leverage their losses more effectively, reducing overall tax liabilities.”Why is that this solely a one-time reduction?Since the reduction falls beneath the ‘Repeal and Saving’ clause of the brand new invoice, it’s designed to supply transitional help because the previous Income Tax Act, 1961 is changed.“It is important to note that ‘Repeal and Saving’ clauses are typically included when old legislation is replaced with new one, ensuring that certain rights or obligations under the old law are preserved,” mentioned Mowar.“The majority may argue that this appears to be a well-thought-out dispensation… others may view it as an oversight, as it contradicts established provisions. Thus, it remains to be seen how the provision is ultimately enacted.” he added.