Skip to main content

The I-T Act - Lower liability with losses with adjustment of capital loss

The I-T Act allows taxpayers to adjust capital lost with any income or gains made in another year

One very important aspect of filing returns is the adjustment of losses. The Income Tax (I-T) Act allows taxpayers, under certain conditions, to set-off loss against income or gains, reducing the net tax liability. If such loss is not fully set-off in one year, it can be carried forward. It is necessary for every taxpayer to understand and take advantage of this facility.

INTER-SOURCE ADJUSTMENT

You can earn income from salary, house property, business or profession, capital gains and residuary income from other sources. There cannot be a loss from salary and income from other sources. But, you could suffer losses under other heads of income.

Loss under one head has to be adjusted against any gain under the same head. This is known as Inter-Source Adjustment. Say, you have two businesses, one is making a loss and the other is profit-making. Then, the loss from the first one can be set-off against profit from the second one. Similarly, if you have two house properties, one self occupied and the other on rent. Loss from the first property can be adjusted against the income from the second property.

INTER-HEAD ADJUSTMENT

If there is some loss leftover, even after setting it off as above. This can then be adjusted against income from other heads. This is called Inter-Head Adjustment. For instance, if you have a single self-occupied house property bought on mortgage, it will show loss. Reason: The annual value of a single self-occupied property is taken to be nil and the adjustment of any interest will result in a negative value. Such a loss may be adjusted with salary or business income, if any.

There are two exceptions to this rule. One, losses under capital gains cannot be set-off with income from any other head. Two, loss from business cannot be setoff against salary income.

CARRY FORWARD THE LOSS

Any loss that cannot be set-off against the same or other heads because of inadequacy of income may be carried forward to the subsequent year. Such a carry-forward exercise can be done for eight years. After eight years, if the loss has still not been adjusted fully, it has to be written off.

Importantly, for carry-forward losses, only Inter Source Adjustment is available in the subsequent years and not InterHead. (See Table)

CAPITAL GAINS

Losses under capital gains have a boundary. This means, these have to be adjusted against other capital gain only and not against other incomes. Long-term capital loss (LTCL) can be adjusted only with longterm capital gains (LTCG), not short-term one. But, short-term capital loss (STCL)can be set-off either with long- or shortterm capital gain (STCG).

If the income from some source is exempted from tax, loss from such a source cannot be set-off. Any long-term loss on sale of shares or equity funds cannot be set-off at all, as the long-term gain from the sale of these instruments is exempted. Example: LTCL (shares) `20,000 LTCG (equity funds) `60,000 STCL (shares) `40,000 LTCL (debt funds) `25,000 STCG (shares) `50,000 LTCG (gold) `15,000 The LTCL from shares ( `20,000) cannot be set-off, since the LTCG from it ( `15,000) is exempted. LTCL from nonequity funds ( `25,000) can be adjusted only with LTCG from gold ( `15,000). Therefore, only `15,000 can be adjusted, the balance `10,000 cannot be. Lastly, the STCL from shares ( `40,000) can be setoff against the STCG from it ( `50,000) and only the balance `10,000 would be taxed.

For being eligible to carry forward and set-off any loss against profits, it is important to file tax returns. If the loss return is filed after the due date, the I-T department may condone the delay only if it is satisfied with the reason behind you not being able to filing the returns on time .

The writer is Director, Wonderland Consultants

TAXATION

Loss carried forward                                                           Adjust Against

House Property Loss                                                           House property income

Business Loss                                                                      Business gain

Capital Loss

a) Short-term                                                                       Capital gains

b) Long-term                                                                       Only long-term capital gains

*Losses can be carried forward for the next 8 yrs

Popular posts from this blog

Jeevan Labh

 The Life Insurance Corporation of India has announced Jeevan Labh , its limited-premium, with-profits endowment plan .   It comes with a premium paying terms of 10, 15 and 16 years for corresponding policy tenures of 16, 21, and 25 years respectively. ----------------------------------------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds Top 10 Tax Saving Mutual Funds to invest in India for 2016 Best 10 ELSS Mutual Funds in india for 2016 1. BNP Paribas Long Term Equity Fund 2. Axis Tax Saver Fund 3. Franklin India TaxShield 4. ICICI Prudential Long Term Equity Fund 5. IDFC Tax Advantage (ELSS) Fund 6. Birla Sun Life Tax Relief 96 7. DSP BlackRock Tax Saver Fund 8. Reliance Tax Saver (ELSS) Fund 9. Religare Tax Plan 10. Birla Sun Life Tax Plan Invest in Best Performing 2016 Tax Saver Mutual Funds Online Invest Online Download Application Forms For further information contact Prajna Capital on 94 83...

Liquidity Adjustment Facility

Liquidity adjustment facility (LAF) is a money market tool used by the central bank of a country (in India it is the Reserve Bank of India ), to infuse funds into the country's banking system when liquidity dries up. Again, in case there is excess liquidity, the central bank uses some tools to help banks manage their surplus liquidity. Usually the RBI uses the repurchase facility (called Repo ) to give short-term loans to banks to meet their temporary liquidity shortage. On the other, hand RBI uses reverse repo facility to help banks park their excess liquidity with it. Banks usually use various securities, which are approved by the RBI, as collateral when they take money from the RBI to meet their short term liquidity requirement     Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015 1. ICICI Prudential Tax Plan 2. Reliance Tax Saver (ELSS) Fund 3. HDFC TaxSaver 4. DSP BlackRock Tax Saver Fund 5. Religare Tax Plan 6. Franklin India TaxShield 7. Canara...

Tata Dynamic Bond Fund exit load

Tata Mutual Fund has revised the exit load of Tata Dynamic Bond Fund to 0.50 per cent if redeemed on or before 180 days. Currently, there is no exit load. The effective date is March 25, 2015. Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015 1. ICICI Prudential Tax Plan 2. Reliance Tax Saver (ELSS) Fund 3. HDFC TaxSaver 4. DSP BlackRock Tax Saver Fund 5. Religare Tax Plan 6. Franklin India TaxShield 7. Canara Robeco Equity Tax Saver 8. IDFC Tax Advantage (ELSS) Fund 9. Axis Tax Saver Fund 10. BNP Paribas Long Term Equity Fund You can invest Rs 1,50,000 and Save Tax under Section 80C by investing in Mutual Funds Invest in Tax Saver Mutual Funds Online - Invest Online Download Application Forms For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call --------------------------------------------- Leave your comment with mail ID and we will answer them OR You can write to us at PrajnaCapital [at] Gmail [dot] Com OR Leave a missed...

Home Loans that Save Time and Money

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   Home Loans that Save Time and Money  You can deposit surplus money in these special home loan schemes and reduce your loan tenure significantly in the process   IF YOU are thinking of taking a home loan and are confident of generating a surplus every month after paying the regular EMI, you can opt for loan schemes with an overdraft facility that not only cut interest payments significantly, but also reduce the loan tenure. State Bank of India, Standard Chartered Bank, HSBC and Central Bank of India offer such home loan products. Under the scheme, as a home loan borrower, you can deposit any surplus that you have into the home loan account, though you retain the option of withdrawing the sum, if required. By depositing an amount higher than your EMI , you save on interest outgo. The principal amoun...

Tata Mutual Fund changes its in Benchmark Indices for few funds

Tata Mutual Fund has approved the changes in benchmark indices of seven funds, with effect from August 01, 2011. The schemes would now be benchmarked against the following indices:   Scheme Names    Existing Benchmark    Proposed Banchmark Tata Dividend Yield Fund   BSE Sensex   S&P CNX 500 Index Tata Equity Opportunites Fund   BSE Sensex   BSE 200 Index Tata Growth Fund   BSE Sensex   CNX Midcap Index Tata Indo Global Infrastructure Fund   BSE Sensex / MSCI World   S&P CNX 500 Index / MSCI World Tata Infrastrucute Fund   BSE Sensex   S&P CNX 500 Index Tata Infrastrucute Tax Saving Fund   BSE Sensex   S&P CNX 500 Index Tata Life Sciences & Technology Fund   BSE Sensex   S&P CNX 500 Index         -----------------------------------------------------------------   Also, know how to buy mutual funds online:   Inve...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now