Taxpayers To Get One-Time Window to Offset Long-Term Capital Loss Against STCG in 2026: Here’s How

In a rare change regarding long-standing capital gains tax norms, the new Income Tax Bill 2025 has introduced a one-time opportunity for taxpayers to reduce their short-term capital gains (STCG) liability by setting off long-term capital losses (LTCL). This relief, tucked inside the ‘Repeal and Saving’ clause of the new legislation, would kick in from the tax year 2026–27 and applies only to losses accumulated up to March 31, 2026.

Until now, the Income Tax Act of 1961 offered no such flexibility. Long-term capital losses could only be offset against long-term capital gains (LTCG), limiting options for investors who did not consistently realise long-term gains. The new bill temporarily overrides this restriction, at least for losses carried forward from before April 1, 2026.

What does this mean for taxpayers?

If you have incurred a long-term capital loss any time before March 31, 2026, and were unable to set it off due to a lack of corresponding long-term gains, you would be able to use that loss to reduce any kind of capital gain, including short-term ones, from the 2026–27 tax year onwards. The window to do this, however, will remain open only for eight financial years from the year the loss was first recorded.

This is being seen as a useful transitional measure. For many individual taxpayers, especially those holding investments that have underperformed over a long period, this tweak will allow better use of those dormant losses. It also opens the door for more efficient tax planning, particularly in the lead-up to the new tax regime.

The taxpayers may also benefit from this by evaluating and realising potential long-term losses before the March 2026 deadline and lock in eligibility for this broader set-off.

Here’s what taxpayers must know about this change

Since the option is a one-time concession, losses incurred after April 1, 2026, will continue to follow the old rules, where LTCL can only be set off against LTCG.

What makes this relief even more noteworthy is that it does not draw a line between long-term and short-term gains for set-off purposes. This break from categorisation will offer a kind of flexibility that is not typically seen in capital gains tax structure.

However, it is important to note that this is a transitional benefit, not a permanent feature and because the clause offering this relief sits within the ‘Repeal and Saving’ section of the bill, which lays the basis for a mechanism to ensure some continuity during the legislative shift from the old Income Tax Act, 1961 to the new framework. In other words, it’s not here to stay, and will not apply to any new losses going forward.