You as a taxpayer can earn income from salary, house property (rental income), business or profession, capital gains, income from other sources (like interest on FD/RD) etc.,
There cannot be a loss from salary and income from other sources. However, you could suffer losses under other heads of income such as loss from house property, business loss, and capital loss.
So, is it possible to set-off capital losses against all these ‘heads of income’
No. We can not set-off capital losses against the below heads of income;
Income from Salary
Income from Business or Profession.
Income from house property (rental income and not capital gains on sale of property)
Other sources of income.
For example: If you make a loss on stock investment, you can not set-off this capital loss against your income from salary.
The capital losses can be set-off against capital gains only.
For example: If you make the capital loss on stock investment, you can set-off this loss against capital gains on the sale of property (if any).
” Long-Term Capital Loss can be set off only against Long Term Capital Gains.”
” Short Term Capital Losses are allowed to be set off against both Long-Term Gains and Short Term Gains.”
How to set-off Capital Losses on Stocks & Equity Mutual Funds?
Below table has the details on capital loss set-off rules on sale of Stocks, Equity Mutual Fund Schemes, listed Debentures & Bonds;
For example: If you had made a short-term capital loss on Stocks and have a Long-term capital gain on Sale of House property in a Financial Year, you can set-off losses on Stock investment against gains on Property.
How to Set-off capital losses on Non-Equity mutual funds & Non-Financial Assets?
Below table has the details on capital loss set-off rules on sale of Property, Debt Mutual Funds (Non-Equity Funds), Gold ornaments, Gold ETFs (Exchange Traded Funds) & unlisted Debentures;
For Example: If you have made a Long-term loss on Debt Funds and have a LTCG on Equity Funds, you can not set-off the loss, as the LTCG on Stocks/Equity funds is a non-taxable income. Instead of LTCG on Equity funds, if you have LTCG on sale of Gold, you can set off the loss on debt funds.
FAQ’S RELATED TO THIS TOPIC
Q- Can I carry forward my Capital Losses to the next Financial Year?
A – Yes. If you can not set-off a capital loss under the same head during the same financial year, you can carry forward such losses to the next financial year and can be set-off against Capital Gains (if any) arising in the next year. A capital loss can be carried forward for 8 years from the end of the financial year in which the loss has been incurred.
Do I need to file Income Tax Return to carry forward my Capital Losses?
– A capital loss can be carried forward to the next year only if you had declared such losses in your ITR and the tax return is filed before the due date.
How to set off Losses from Intra-day trading?
– If you have incurred speculatively loses by doing Intra-day trading in Stocks, they can only be set off through speculative income and can be carried forward up to four years only.
How to set off losses on Futures & Options trading?
– Intra-day trading has been defined as ‘Speculative business’ whereas F&O trading is not. Income from trading in F&O (both intraday and overnight) on all the Stock Exchanges can be considered as non-speculative business income. Speculative (Intraday trading in equity) loss can’t be offset with non-speculative (F&O) gains, but speculative gains can be offset with non-speculative losses.
If I have a Capital Loss & Capital Gains on various investments, what is the effective way of setting-off my loss?
– Kindly note that there is no standard rule that the short-term capital loss has to be the first set off against short-term capital gains before being set off against long-term capital gains. So, you need to look at the applicable tax rate on various Capital Gains and try to set-off your capital loss against the capital gain which has the lowest tax rate (also, do consider your income tax slab rate).
If income from any source is exempt, then can lose from such source be adjusted against any other taxable income?
– If income from a particular source is exempt from tax, then loss from such source cannot be set off against any other income which is chargeable to tax. For example, Agricultural income or Long Term Capital Gains on Stocks/Equity Funds are exempt from tax, hence, if the taxpayer incurs the loss from agricultural activity, then such loss cannot be adjusted against any other taxable income.