How to Carry Forward Capital Losses Using ITR-2

Navigating a short-term capital loss (STCL) can be a bit confusing, but filing your Income Tax Return (ITR) correctly is key to managing it effectively. If you’ve incurred an STCL in the Financial Year (FY) 2024-25, here’s how you can use ITR-2 to carry it forward and reduce your future tax liability on capital gains.

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Filing for Capital Losses in ITR-2

First, you need to use the right form. ITR-2 is the correct form for individuals and Hindu Undivided Families (HUFs) who have capital gains or losses, and no income from a business or profession.

Once you have the form, here’s the process:

1. Set-off Against Current Gains: Your first step is to set off the STCL against any capital gains you’ve made in the same financial year. This can be against either short-term or long-term capital gains. This process helps you minimize your tax payable for the current year.
2. Carry Forward Remaining Loss: If you can’t fully adjust the STCL in the current year, you can carry forward the remaining amount. This unadjusted loss can be carried forward for up to eight consecutive assessment years.
3. Future Adjustments: In future years, you can set off this carried-forward STCL against any short-term or long-term capital gains you have. However, remember that you can only set it off against capital gains, not against other income sources like salary or business income.

Steps to Take in the ITR-2 Form

To correctly file your STCL, follow these steps within the ITR-2 form:

• Go to the “Capital Gains” schedule.
• Locate the “Schedule CFL” (Carry Forward of Losses).
• Enter your STCL amount under the appropriate assessment year, which is AY 2025-26 for the FY 2024-25.

Important Filing Requirements

To be eligible to carry forward any losses, you must file your ITR on or before the deadline. For the FY 2024-25, the ITR filing deadline is September 15, 2025. If you file after this date, you will not be able to carry forward your losses as per Section 139(3) of the Income Tax Act.

After you’ve filed your return, don’t forget to e-verify it. The Income Tax Department will not begin processing your return until it’s verified.