New Delhi: The deadline to file ITR (July 31, 2024) is a month away. Gains or losses incurred by selling shares, mutual funds, gold or real estate are called capital gains or losses. If you also deal with any of the financial instrument, remember that capital gains and losses are taxed differently. If you have incurred losses on the sale of your capital asset, then you can set it off against your income to lower your tax liability. You will need to choose specific ITR for your capital losses.
What is Capital Loss/Gain?
The profit/loss made from transfer or sale of any capital asset is called capital gains/loss. Immovable property like land, plot, building, house-flat and liquid assets like shares, mutual funds, unlisted shares, bonds etc are considered capital assets. The profit made from selling an asset can be long term or short term capital gain. This is determined by the asset and its holding period i.e. the period of time to keep the asset and sell it.
What is Long term capital Asset?
When a person sells a capital asset after keeping it for more than 36 months, the income earned from it is called long term capital gain. However, for some assets like stock exchange listed shares (equity or preference), units of equity mutual funds, listed securities like debentures and government securities, UTI units and zero coupon bonds, the holding period is 12 months instead of 36 months. Similarly, in case of unlisted shares and property (house or building), the holding period is 24 months instead of 36 months.
How to Set-off capital loss?
Under the Income-tax Act, 1961, losses under the capital gains head cannot offset income from other heads like income from salary, business, or profession etc. They can only be set off within the ‘Capital Gains’ head. Long-term capital losses can only offset long-term capital gains. However, taxpayers can set-off Short-term capital losses against both long-term and short-term capital gains.
Short-term capital losses incurred in the current year must be offset against current year income and cannot be carried forward without deduction. If the entire capital loss cannot be set off in the same year, it can be carried forward for up to eight assessment years following the year in which the loss was initially calculated. This rule applies irrespective of whether the loss is short-term or long-term.
Which ITR form should be filed to adjust capital loss?
There are various ITR forms available. You will have to choose the right ITR on the basis of specific sources and levels of income. Taxpayers who have gains or losses from capital assets typically use ITR-2. For those with gains or losses from business income, ITR-3 is necessary.
It is important to select the correct ITR form as filing wrong ITR form will make it invalid. It will be deemed that you have not filed ITR at all. Also remember to file ITR within orginal due date as you will not be able to set off losses while filing late ITR.
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ITR 2024: If a loss under the head of Capital Gains in a given year cannot be fully adjusted, the unadjusted loss can be carried forward to the next year. This loss can only be set off against income that is taxable under the head of Capital Gains. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
