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

SBI Magnum Tax Gain Scheme 1993 Applcation Form

    https://sites.google.com/site/mutualfundapplications/tax-saving-mutual-funds-elss     Investment Details Basics Min Investment (Rs) 500 Subsequent Investment (Rs) 500 Min Withdrawal (Rs) -- Min Balance -- Pricing Method Forward Purchase Cut-off Time (hrs) 15 Redemption Cut-off Time (hrs) 15 Redemption Time (days) -- Lock-in 1095 days Cheque Writing -- Systematic Investment Plan SIP Yes Initial Investment (Rs) -- Additional Investment (Rs) 500 No of Cheques 12 Note Monthly investment of Rs 1000 for 6 months and quarterly investment of Rs 1500 for 4 quarters.

Birla Sun Life Tax Plan Online

Invest Birla Sun Life Tax Plan Online   An Open-ended Equity Linked Savings Scheme (ELSS) with the objective to achieve long-term growth of capital along with income tax relief for investment.   After a bad patch from 2008 to 2010, Birla Sun Life Tax Plan has made a big comeback in the last five years, with a particularly good run since 2014. The fund's rankings, which had slipped to two stars in 2011-12, recovered sharply to three-four stars in the last three years. The fund has delivered a particularly large outperformance over its benchmark and peers in the last couple of years. The fund's investment strategy focuses on a diversified and high-quality portfolio, with parameters such as capital ratios and balance-sheet strength used to judge quality. It uses a combination of top-down and bottom-up approaches to take sector/stock positions. The fund avoids highly leveraged plays. Staying more or less fully invested at all times, the fund parks roughly half of its portfoli

Should you Roll Over 1 year Fixed Maturity Plans?

The period between January and March typically sees an uptick in the launch of fixed maturity plans, or FMPs. Not this year. Instead, fund houses are busy rolling over or extending the tenure of their one- year FMPs launched last year to three years. Investors in one- year FMPs have a choice. Either redeem units or roll over to three years. If you exit now, your gains will be added to your income and taxed in line with your individual slab rate of 10, 20 or 30 per cent. If you stay invested for two more years, you pay 20 per cent tax with indexation benefit. Yields have softened in the past few months on expectations of a rate cut. If the central bank continues its soft monetary stance, yields are likely to fall further. In such a scenario, it makes sense for investors, particularly those in the 30 per cent tax bracket, to roll over their investments and lock in at a higher yield now. In a surprise move, the Reserve Bank of India cut repo rate by 25 basis

Mutual Fund Review: IDFC Premier Equity Fund

  IDFC Premier Equity Fund, which falls under the presumed high risk group of mid- and small-cap schemes, can rely on astute and timely equity picks. These make it less vulnerable to fluctuations compared with others in the category   IDFC Premier Equity Fund is designed to invest in upcoming, but promising businesses available at cheap valuations, and hold on to these businesses until they reap desired returns. The experiment has been successful so far, and IDFC Premier Equity has emerged as one of the top performing mutual fund schemes in the mid- and smallcap category of equity schemes.    While the scheme is an open-ended equity fund, i.e. open for subscriptions throughout the year, it has a unique philosophy to limit fresh inflows. Thus, while an investor can always take the systematic investment plan ( SIP ) route to invest in the scheme throughout the year, inflows through a lumpsum investment have been restricted. Since inception, IDFC Premier Equity has been opened for l

IDFC Premier Equity Fund dividend

  IDFC Mutual Fund   has announced dividend under the dividend option of   IDFC Premier Equity Fund Direct-D . The quantum of dividend shall be   R 4.3464 per unit.   The record date has been fixed as May 06, 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]
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