Capital Loss: Therapy for Earnings Tax functions

On the time of sale of any Asset, if a Brief Time period/ Lengthy Time period Capital Loss arises to a taxpayer; this loss is allowed to be set-off in the identical 12 months in opposition to different incomes. Nonetheless, if this loss isn’t set-off in the identical 12 months, it’s allowed to be carried ahead to the subsequent 12 months. This text focusses on the provisions associated to Carry Ahead and Set-off of Capital Loss.

The remedy of Capital Loss could be the identical in all of the circumstances no matter whether or not the Loss on sale of asset has been incurred by NRI or by a Resident Indian.

Set-off of Capital Loss

Capital Loss arising to a taxpayer can solely be set off in opposition to incomes from the identical head i.e. it might solely be set off in opposition to incomes arising beneath the top “Capital Positive aspects” and can’t be set off in opposition to incomes arising beneath the next heads, specifically

  1. Wage
  2. Home Property
  3. Enterprise/ Occupation
  4. Different Sources

Furthermore, Capital Loss can’t be set off in opposition to all Capital Positive aspects and there are a number of guidelines for set-off of such loss that are talked about under.

Lengthy Time period Capital Loss

If any Lengthy Time period Capital Loss arises on the sale of any asset, it’s allowed to be set-off in opposition to long run capital positive aspects arising from the sale of any asset. In different phrases, long run capital loss can’t be set-off with brief time period capital acquire.

Brief Time period Capital Loss

Brief time period capital loss arising from the sale of any asset (incl. Shares & Mutual Funds) is allowed to be set-off in opposition to any revenue whether or not Brief Time period or Lengthy Time period.

The above situations have been summarised within the following desk

Particulars Set-off of Loss
Inter head Identical head
Brief Time period Loss
   Shares, Mutual Funds and many others x LTCG/STCG
   Others x LTCG/STCG
Lengthy Time period Loss
   Shares, Mutual Funds and many others x x
   Others x LTCG

‘x’ signifies that set-off isn’t allowed

Carry Ahead of Capital Loss

If a capital loss can’t be set off from the identical head throughout the identical 12 months, it shall be carried ahead to the subsequent 12 months and allowed to be set off in opposition to Capital Positive aspects arising within the subsequent 12 months. After carrying ahead the losses to the subsequent 12 months, set-off could be executed in the identical method as talked about above.

A Capital Loss is allowed to be carried ahead for 8 years from the tip of the 12 months wherein the loss was incurred.

Obligatory submitting of Return of Loss earlier than the due date

Loss will be carried ahead to the subsequent 12 months solely when the loss is correctly disclosed within the Earnings Tax Return and the revenue tax return is filed earlier than the due date of submitting of return.

If the revenue tax return isn’t filed earlier than the due date and a belated return is filed after the due date, capital loss wouldn’t be allowed to be carried ahead to the subsequent 12 months.

Nonetheless, if the revenue tax return was filed earlier than the due date and later a revised return is filed, the loss as disclosed within the return could be allowed to be carried ahead. [CIT v Periyar District Co-Operative Milk Producers Union Ltd.]

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