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Income Tax Return (ITR): Is it possible to set off stock market losses against salary?

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Income Tax Return (ITR): Is it possible to set off stock market losses against salary?  | &nbspPhoto Credit:&nbspBCCL

It is that time of the year when taxpayers try to find new ways to reduce their tax burden before filing their Income Tax Returns (ITRs). Given equity markets have seen tremendous participation from retail investors in the past year, it is pertinent to know whether it’s possible to save taxes with respect to profit or losses booked in stock trading over the course of the Assessment Year 2020-21.

Given the double-edged nature of stock trading, for every investor that makes handsome returns, there are many who book losses as well. Is it possible to offset losses incurred in stock market transactions against an individual’s salary? According to tax and investment expert Balwant Jain stock market proceeds are either taxed under ‘Capital gains’ or ‘Profits under gains of business profession’ depending on various factors.

This categorisation of income under Capitals gains head or business income head would depend on factors such as holding period, source of money invested, number of transactions, purpose or intention behind making the investments. For example, intraday transactions, where trades are carried out without delivery of shares, are considered speculative investments and hence any loss incurred on such transactions may be adjusted against any other speculative identical transactions whether commodity or share-based. Such a loss cannot be adjusted against profits from regular business activity, according to Jain.

Any other loss incurred on transactions other than intraday trading may be adjusted against income except your salary income if transactions are treated as business and not as investment. However, if such an income is treated as income then it losses thereof may be adjusted against capital gains and cannot be setoff against any other head.


So, any loss from transactions either ‘Capital Gains’ or ‘Profits and gains of business or profession’ cannot be adjusted against your salary income during the assessment year. However, losses under any of the heads which cannot be adjusted during a year are allowed to be carried forward to be adjusted against the same income head for the prescribed year.