It would be absolutely naïve to expect that you will only make profits in equities. As past experience has shown, you are as likely to make losses in any year, in fact more so, as you are likely to make profits. In case of profits on equity, the taxation is either 15% in case of STCG or 10% above Rs.1 lakh in case of LTCG. But, how do you treat losses in case of equities? You may think it is unfair that you pay tax on profits but nobody pays you back when you are making losses. Relax there is good news for you. The Income Tax Act gives you the benefit of writing off losses against gains and also to carry forward your losses for a period of 8 financial years. In case of equities, the treatment is slightly more complicated.

In case of LTCG, we have to look at loss write offs in two different slots. Before April 2018; since LTCG was entirely tax free in the hands of the investor, long term losses do not have the benefit of carry forward or set-off. Before April 2018 if you bought shares at Rs.50,000 and sold the same at Rs.40,000 after 1 year, then that being a long-term loss can neither be set off against other income nor can it be carried forward. However, since now LTCG is taxable, proportionate loss set-off and carry forward of losses can be availed by the tax assessees. STCG, however, gets a slightly different treatment. Since STCG on equities is taxed at 15%, any short term losses can be set off against short term profits. Also these losses can be carried forward for a period of 8 years and set off against future profits. However, since STCG is preferentially taxed at 15%, short term losses cannot be set off against other sources of income.