By ipomarket.in Editorial Team · Last reviewed: 2026-07-26
Disclaimer: This article is for informational purposes only and does not constitute investment advice. IPO investments are subject to market risks. Please read the offer document carefully and consult a SEBI-registered investment advisor before investing.
Not every IPO lists at a premium. When a stock lists below its issue price, or slides after listing, an investor who sells can end up with a capital loss. The good news for taxpayers is that Indian income tax law does not let that loss simply disappear. You can set it off against certain other gains, and if there is anything left over, you can carry it forward to future years.
This guide explains how set-off and carry-forward work for losses on IPO shares, using the rules under the Income Tax Act. It is a compliance explainer, not investment advice, and none of it is a reason to buy or sell anything.
What counts as a capital loss on IPO shares
When you sell shares you received in an IPO for less than what you paid, the difference is a capital loss. Two things decide how that loss is treated:
- Holding period. For listed equity shares, the cut-off is 12 months from the date of allotment (or acquisition). Sell within 12 months and it is a short-term capital loss (STCL). Sell after 12 months and it is a long-term capital loss (LTCL).
- The head of income. Capital losses live only inside the "Capital Gains" head. They cannot be adjusted against salary, business income, or any other head.
A common scenario: you get allotment, the stock lists below the issue price, and you exit on listing day. Because you have held the shares for well under 12 months, that is a short-term capital loss, and you can use it to reduce tax on other capital gains in the same financial year. If you are still weighing whether to exit on debut, our IPO listing day strategy guide covers the trade-offs separately from the tax angle.
The set-off rules, in plain terms
The direction in which a loss can be adjusted depends on whether it is short-term or long-term.
Short-term capital loss (STCL)
An STCL is the more flexible of the two. It can be set off against:
- Short-term capital gains (STCG) from other investments, and
- Long-term capital gains (LTCG) from other investments.
So if you booked a short-term loss on an IPO stock and also have long-term gains elsewhere in the same year, the short-term loss can bring down that long-term gain.
Long-term capital loss (LTCL)
An LTCL is more restricted. It can be set off only against long-term capital gains. It cannot be used against short-term gains.
The table below summarises the direction of set-off.
| Loss type | Can offset STCG? | Can offset LTCG? |
|---|---|---|
| Short-term capital loss (STCL) | Yes | Yes |
| Long-term capital loss (LTCL) | No | Yes |
Neither type can be set off against salary, interest, rent, or business income. The adjustment stays entirely within the capital gains head.
Carrying forward what you cannot use this year
If your losses are larger than the gains available in the same financial year, the unabsorbed portion does not go to waste. Capital losses can be carried forward for up to eight assessment years and set off against capital gains of those future years, following the same STCL/LTCL rules described above.
There is one condition that trips up a lot of taxpayers: to carry forward a capital loss, you must file your income tax return on or before the due date under Section 139(1). Miss the deadline and you lose the right to carry the loss forward, even though the loss itself is genuine. Filing a late return may still be possible, but the carry-forward benefit is gone.
How this shows up in your ITR
Capital gains and losses from shares, including IPO shares, are reported in Schedule CG of the income tax return. The schedule handles the set-off working for you when the details are entered correctly.
Which form you use depends on your income mix:
- ITR-2 is generally used when your income comes from salary and capital gains (including from selling IPO shares) but not from a business or profession.
- ITR-3 applies if you also have income from a business or profession, for example if you are treated as a trader rather than an investor.
Keeping clean records of allotment dates, issue prices, sale prices, and contract notes makes this far less painful at filing time. Our note on maintaining IPO trade records for tax filing walks through what to keep and why.
Tax rates that provide the context
The reason set-off matters is that gains are taxed. For listed equity, the broad position is:
- Gains on shares sold within 12 months are treated as short-term. Per the research reviewed, short-term gains on such shares are taxed at 20% plus applicable surcharge and cess.
- Gains on shares sold after 12 months are long-term, and long-term gains are taxed at 12.5% only on the amount by which total LTCG for the year exceeds ₹1.25 lakh.
Because a short-term loss can reduce even a long-term gain, timing and record-keeping can materially change the tax you pay. This is the mechanism behind what fintech and broker articles often call "tax-loss harvesting" — deliberately booking a loss to offset gains. That is a reported strategy rather than an officially endorsed one, and whether it makes sense in your situation is a question for a qualified advisor, not a general article.
If you want the fuller picture on the ₹1.25 lakh threshold, see our explainer on the ₹1.25 lakh LTCG exemption on IPO gains.
A note on recent tax-law changes
Research reviewed for this article mentions that the Income Tax Act, 2025 has moved from the older "previous year" and "assessment year" language to a single "tax year" concept, alongside revised capital gains rules. The precise operational impact on set-off and carry-forward was not detailed in the sources we could verify, so treat any specifics here as subject to confirmation from the latest official guidance and your tax professional before you rely on them for a filing.
FAQ
Can a short-term loss on IPO shares offset long-term gains from other stocks?
Yes. A short-term capital loss is the more flexible type and can be set off against both short-term and long-term capital gains from other investments in the same financial year.
Can a long-term loss on IPO shares offset short-term gains?
No. A long-term capital loss can be set off only against long-term capital gains. It cannot be used against short-term gains.
How long can I carry forward an unused capital loss?
Capital losses can be carried forward for up to eight assessment years and adjusted against future capital gains, provided you filed your income tax return by the due date under Section 139(1).
Can I set off IPO losses against my salary?
No. Capital losses can only be adjusted within the capital gains head. They cannot reduce salary, interest, rent, or business income.
Where do I report all this in my return?
Capital gains and losses, including from IPO shares, go in Schedule CG of the ITR. Salaried investors with capital gains typically use ITR-2, while those with business or professional income use ITR-3.
The bottom line
A loss on an IPO stock is disappointing, but the tax rules give you a way to soften it. Short-term losses are flexible and can offset both short and long-term gains; long-term losses can only offset long-term gains; and anything unused can travel forward for up to eight years, so long as you file on time. Get the return filed by the deadline, keep your trade records tidy, and check the current rules with a SEBI-registered advisor or a chartered accountant before you finalise your filing.
Last reviewed: 2026-07-26 by the ipomarket.in Editorial Team.