Capitalise Losses To Set Off Against Future Gains

Form 16 supports the fact that TDS has been deducted and deposited with the authorities on behalf of the employee. 

As individuals start the process of filing the Income Tax Return (ITR), many are still missing out on the importance of adding details of capital gains and losses incurred. It is important to disclose the required details of both losses and gains in ITR. Let us look at various factors in detail.

Capital gains on mutual funds

Redemption of equity mutual funds may generate capital gains that attract tax. The rate at which the gains are taxed depends on the holding period. The holdings, which remain for over one year are defined as long term. Hence, the gains, which are made from the sale of units after one year, with gains above Rs 1 lakh, are termed as Long-Term Capital Gains (LTCG) and are taxed at the rate of 10 per cent. Similarly, if you redeem your mutual funds within one year from the date allotment, they attract Short-Term Capital Gains (STCG). The tax cut of STCG is 15 per cent. 

It is important to set off losses against future gains

When the sale receipts from capital assets are less than the cost of acquisition and expense on transfer, you incur a capital loss instead of gain. While capital gains are taxed according to the tax rate applicable based on the type of asset, it is important to set off the capital losses.

Suneel Dasari, Founder & CEO @EzTax.in - MYD Labs says, “No one does trade for losses but when incurred such, it is advised to capitalise the losses to set off against future gains by filing taxes.”

Let us understand how capital losses are treated. 

Long-term capital loss can be set off only against long-term capital gain and short-term capital loss can be set off against both long-term capital gains and short-term capital gains. 

“The losses incurred in stocks can be set-off against the current or future income from house property, capital gains, and other sources. These can be carried forward to four to eight years depending on the type of loss. In certain cases, if the stock trade value is more than a certain limit, it is mandatory to efile one’s taxes even though the total income during that FY is less than the exemption limit”, Dasari adds. 

If one is not able to set off the entire capital loss in the same year, both short term and long term loss can be carried forward for eight assessment years following the first computed loss. If the losses rise from a business, they are allowed to be carried forward. 

Individuals getting salary along with capital gains are required to file ITR-2. 

Whereas, those with a business background with capital gains, have to file ITR-3. 

The Central Board of Direct Taxes (CBDT) recently extended the last date of filing belated and revised ITR FY2018-19 ( AY-2019-20) to September 30, 2020 owing to COVID-19 pandemic and thus easing complications for the taxpayer. 

“CBDT recently signed an MOU with Sebi for sharing trade data to strengthen the oversight and compliance measures and this may be another reason for not avoiding income tax filing”, Dasari further adds.