One-Time Relief in Capital Gains Tax under New Income Tax Bill 2025

Synopsis

What does this proposed change in capital gains tax provision mean?

This means under clause 536 (n) of the Income Tax Bill, 2025 taxpayers are allowed to carry forward and set off of brought forward LTCL incurred up to 31 March 2026 against all future capital gains (including STCG) from tax year 2026-27 onwards.

Key Provisions of the New Income Tax Bill, 2025

• Any brought forward long-term capital loss (LTCL) incurred up to March 31, 2026, can be set off against any short-term capital gains (STCG)
• The provision applies to losses incurred up to March 31, 2026
• The set-off of LTCL against STCG applies to tax years starting on or after April 1, 2026

What is the Impact of this Change on Individual Taxpayers?

A temporary relief from the otherwise restrictive loss set-off rules under Income Tax. This broader scope of set-off could result in faster absorption of losses, leading to reduced tax outgo in the initial years of transition and better cash flow management.

Expert Insights

“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,” says Dr. Suresh Surana.

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1. Chartered Accountant (Dr.) Suresh Surana explains: “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.”
2. Aseem Mowar, Tax Partner EY India, explains: “Currently, the Income Tax Act, 1961 allows the set-off of brought forward Long-Term Capital Losses (LTCL) only against Long-Term Capital Gains (LTCG), limiting taxpayers’ flexibility to offset LTCL with Short-Term Capital Gains (STCG).”
3. Aseem Mowar, Tax Partner EY India, explains: “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.”

Eligibility Conditions for the New Income Tax Bill, 2025

• LTCL incurred up to March 31, 2026
• Set-off of LTCL against STCG applies to tax years starting on or after April 1, 2026
• The provision applies to losses incurred up to March 31, 2026

Impact of the New Income Tax Bill, 2025 on Individual Taxpayers

This broader scope of set-off could result in faster absorption of losses, leading to reduced tax outgo in the initial years of transition and better cash flow management. 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. The New Income Tax Bill, 2025 is written under the ‘Real and Saving clause’, which ensures that certain rights or obligations under the old law are preserved.

Expert Insights

“The majority may argue that this appears to be a well-thought-out dispensation given the distinction and specific provisions made, others may view it as an oversight, as it contradicts established provisions. Thus, it remains to be seen how the provision is ultimately enacted,” says Aseem Mowar.

Conclusion

The new Income Tax Bill, 2025 introduces a one-time relief that allows taxpayers to reduce their net capital gains tax by setting off their long-term capital losses (LTCL) against short-term capital gains (STCG). This provision applies to losses incurred up to March 31, 2026, and offers a temporary departure from existing tax rules. Experts suggest that this change can help taxpayers with tax planning opportunities for the financial year 2026-27 onwards.