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

How much to invest in gold ?

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India) Let your motivation dictate the share of the yellow metal in your portfolio Enough has been said and written about gold as an investment option. The latest argument is that the craze for gold among Indian households is endangering our country's balance of payments. The policymakers are busy trying to find ways of discouraging investment in gold, but if households keep the common good in mind, they would be paying the market price for gas cylinders as they do for, say, their mobile phone bills. After all, private decisions are driven by private motives. So, how should a household look at gold from its own perspective? Gold is primarily acquired for its merit as a store of value. Even if the worst crisis hits a family, the gold that it holds could be put to use anywhere in th...

Save Tax With Mutual Funds

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       Mutual funds are ideal as long term investment avenues for retail investors. To encourage investments in this avenue, the Government of India offers investors a spate of tax benefits thus ensuring maximum benefit from mutual funds held beyond a year. Sample some of the key benefits and refer to the table for a detailed list of tax rates for different types of schemes ·        Avail deductions under Sec 80C of the Income Tax Act by investing up to a maximum of Rs. 1 lakh in designated Equity Linked Savings Schemes (ELSS). Such investments have a compulsory lock in period of 3 years. ·        First time retail investors in equity with a gross total income of up to Rs. 12 lakh can invest up to Rs. 50,000 in specific MF schemes un...

Mirae Asset Ultra Short Term Bond Fund and Mirae Asset Tax Saver Fund

Mirae Asset Mutual Fund   has renamed   Mirae Asset Ultra Short Term Bond Fund , an open ended debt scheme, to   Mirae Asset Tax Saver Fund   with effect from October 18, 2016. Also, Mr. Sumit Agrawal, the co-fund manager of Mirae Asset India Opportunities Fund (MAIOF) and Mirae Asset Great Consumer Fund (MAGCF) ceases to be the fund manager with effect from October 1, 2016. Consequently, MAIOF shall now be solely managed by Mr . Neelesh Surana while MAGCF shall continue to be co-managed by Mr. Neelesh Surana and Ms. Bharti Sawant. ------------------------------ ----------------- 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 Saver 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. Religare Tax Plan 4. DSP BlackRock Tax Saver Fund 5. Franklin India TaxShield 6. ICICI Prudential Long Term Equity Fund 7. ID...

Good Loan

Why Is It A Good Loan?: Loans against gold are cheaper and better than personal loans as the former are available at lower interest rates. In contrast, the interest rates on personal loans are not standardised and can vary from bank to bank. Also, a personal loan depends on a host of factors including, the borrower's salary, profession and the purpose for which the loan is being taken.      For instance, the interest rate on a personal loan of 5 lakh falls in a wide range of 15-30%. But loans against gold are available for as low as 11%. Secured borrowing such as a loan against gold, investments or property is cheaper because it is backed by some assets, which command a good value at any point of time. If the borrower defaults on the loan, the banks can liquidate the assets to settle the loan account.    Being a secured loan, the risk of default and credit losses is significantly lower in this loan compared to other forms of loan for personal use. Given the lower risk, gold loa...

SBI Small Cap Fund

SBI Small Cap Fund scheme seeks to provide investors with opportunities for long-term growth in capital along with the liquidity of an open-ended scheme by investing predominantly in a well diversified basket of equity stocks of small cap companies. SBI Small Cap Fund has widened its margin of outperformance relative to its category and benchmark in the last one year, earning itself a five-star rating. The fund shows a hefty 18 percentage-point outperformance relative to its peers in the last one year, 5 percentage points over three years and 4 percentage points over five years. Needless to say, it has also outpaced its benchmark to deliver convincing five-year annualised returns of 37 per cent. A believer in the credo that a small market cap does not reflect business quality, the fund looks for five attributes in the stocks it buys: competitive advantage, return on capital, growth, management and valuation. SBI Small Cap Fund is among the few in this space to remain at quite a man...
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