Q. To reduce my tax liability on Long Term Capital Gains (LTCG) earned during the year, I plan to sell some shares bought in April 2025 which are now quoted at a far lower price than my purchase price. Since I have a strong conviction about my purchase decision, I plan to buy the same shares on the same day using the same demat account. As the shares may not actually leave my demat account, will I still be eligible to treat this loss as a Short-Term Capital Loss (STCL) and set it off against my LTCG during the year?
The income tax laws provide that in case any transaction of purchase or sale of securities is squared off without actual delivery, by way of adjustment of difference in price, the same transaction is to be treated as a speculative business transaction. If the transaction results in loss, the same speculative loss can only be set off against speculative profits of any nature and not against any other income during the year.
Tax implications of same-day transactions in a single demat account
Since you are planning to carry out the sell and purchase transactions on the same day from the same broker where one demat account is mapped, the transactions will be treated as speculative, and the difference between the purchase price and sale price of the same day will be treated as speculative profit/loss, and thus you will not be able to set off the loss arising due to the difference between your purchase price of April 2025 and sale price of the day on which you execute the transaction against the LTCG (Long Term Capital Gains).
The speculative profit, if any, on this transaction will become taxable under the head “Profits and Gains of Business or Profession” and not under the head “Capital Gains”.
How to ensure set-off against capital loss?
In order to ensure that you are able to set off the loss due to the difference between your purchase price of April 2025 and current selling price, you have two options. If you have more than one trading account linked with different demat accounts, you can carry out the purchase and sale transaction on the same day. Sale transaction on one broker’s account and purchase transaction on another broker’s account.
Alternatively, you can execute a sale transaction on day one and a purchase transaction on day 2 to ensure that the shares sold by you are debited in your demat account. In both the cases, the shares sold by you will be debited from your demat account.
Read all our personal finance stories here.
Balwant Jain is a tax and investment expert and can be reached at jainbalwant@gmail.com and @jainbalwant on his X handle.
Disclaimer: The views and recommendations made above are those of individual analysts, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
