We all want to make profits on our investments. No one wants losses. Investments, especially in stocks or equity mutual funds attract lot of risk. So sometimes, we may end up making losses on these investments. These can be short term capital losses or long term capital losses.
Is there any option to turn these losses into gains? Can I maximize income by properly accounting for losses while calculating the tax liability?
Let us understand – what are financial assets? What are long term and short term capital gain/loss? How to set off the short term losses of stock investments?
Stocks are Financial Assets
Capital asset typically refers to anything the individual owns for personal or investment purposes. It includes all kinds of property, movable or immovable, tangible or intangible, fixed or circulating.
Capital assets are further classified as Financial asset and non-financial asset. Financial assets are intangible and represent the monetary value of a physical item.
Stocks (Shares) and equity mutual funds are examples of Financial Assets.
Short Term Capital Gain/Loss – (STCG / STCL)
If a financial asset is held for less than 12 months then that asset is treated as Short Term Capital Asset. And the investor will make either Short Term Capital Gain or Short Term Capital Loss on that investment.
Long term Capital Gain/Loss – (LTCG / LTCL)
If a financial asset is held for more than 12 months then that asset is treated as Long Term Capital Asset. And the investor will make either Long Term Capital Gain or Long Term Capital Loss on that investment. ( For Non Financial Assets , the duration is 36 months)
Can I set off Short Term Capital Losses made on Stocks or Equity Mutual Funds?
Can you gain from the short term losses you made on stocks? Yes, you can set them off against the Short Term Capital Gains (or) Long Term Capital Gains that you might have made on other capital assets. These other capital assets are like Property, Gold, Debt Mutual Funds etc.,
Example – Mr Jagan bought a property in 2009. He also bought some companies shares (mainly penny stocks) worth Rs 6 Lakhs, in January 2013. He made these investments through his Demat Account.
In September 2013, he sold the property (he held the property for more than 36 months, so it is a Long Term Capital Asset). And made Long Term Capital Gains (after indexation) of Rs 30 Lakhs.
The applicable Tax rate on LTCG is 20%. So, Jagan has to pay Rs 6 Lakhs as capital gains tax (20% on 30 Lakhs).
But he was not that lucky with his portfolio of stock investments. He sold the shares in October 2013, and booked losses to the tune of Rs 3 Lakhs. Since he sold the shares in less than 12 months, these losses are treated as Short Term Capital Loss.
So, he made Rs 30 Lakhs LTCG and Rs 3 Lakhs STCL during the Financial Year (2013-2014). Jagan filed his Income Tax Returns on time and took help of a Chartered Accountant. While calculating his tax liability, his CA deducted Rs 3 Lakhs (short term losses) from Rs 30 Lakhs (Long term gains). And calculated 20 % tax on Rs 27 Lakhs only.
Setting off a short-term loss of Rs 3 Lakh against long term gains helped him in saving Rs 60,000.
Carry Forward of Short Term Capital Losses
What if you have not made any Capital Gains on other assets in a fiscal year? In this scenario, you can carry forward the Short Term Capital Losses to subsequent 8 fiscal years.
Important points to be noted
- Short Term capital losses can be carried forward only if you file Income-Tax returns on time.
- Also note that the capital losses can not be set off against other income heads like Salary, Business Income, Income from other sources etc.,
Another important point is The Long Term Capital Losses on stock or equity fund investments can not be set off against any other capital gains. Now (effective from FY 2018-19) that the long-term capital gain on sale of equity funds and listed shares is going to be taxable, you can expect long-term capital losses on the sale of equity shares or equity mutual fund units to set off capital gains. (Related article : ‘Budget 2018 LTCG Tax on Equity Mutual Funds & Important Implications.’)
How to get Capital Gains/Loss Statement?
You may find it very cumbersome to calculate the capital gains or losses on your stock investments. Good news is, most of the demat account service providers now provide Capital Gains Statement online. You may also raise a request for the capital gain statement.
Below are the screen print images of a ICICI Direct demat account. Similar to these options, you may find the required links on your demat account too.
Many investors try to ignore about the losses they made on stock investments. Yes, it is better to forget about them but learn from these mistakes and try not to repeat them. At the same time, be prudent and try to minimize your tax liability. Set off short term capital losses on stocks and equity mutual funds whenever it is possible.
Hope this post is informative. Do share your stock investment experiences. Cheers!
Continue reading : ‘How to set-off Capital Losses on Mutual Funds, Stocks, Property, Gold, Bonds & Debentures?‘
( Image courtesy of imagerymajestic at FreeDigitalPhotos.net)
I’m a bit confused about LTCG for mutual funds. Let me state my example and help me out with my query. I purchased equity mutual fund 4yrs ago for Rs. 50000. On 31st Jan 2018 the value was 85000. Today the value is 79000. My query is if I sell my mutual fund today do I make LTCG of (79000-50000=29000) or LTCL of (79000-85000=-6000)
Its Rs 29k.
I thought capital gains prior to 31st Jan 2018 was grandfathered? Please please explain how LTCG in above case is 29k.
In your original comment, you mentioned only about CG/CL and not on taxes.
Kindly go through below points to understand about the calculation;
If an equity share /equity mutual fund is purchased six months before 31st January, 2018 at Rs 1,000 and the highest price quoted on 31st January, 2018 in respect of this share is Rs 1,200, there will be no tax on the gain of Rs 200, if this share is sold after one year from the date of purchase.
However, any gains in excess of Rs 200 earned after 31st Jan 2018 will be taxed at 10%, if this share is sold after 31st March 2018. Kindly note that you pay tax only the extra gain made after 31st Jan, 2018 and only if all such extra gains are above Rs 1 lakh.
So, If your LTCG is say Rs 1.25 Lakh and tax of 10% is applicable then you need to pay tax on Rs 25,000 only i.e., Rs 2,500 (up to Rs 1 Lakh, it is tax-free and on the remaining Rs 25,000 gains, 10% tax is applicable).
Kindly read :
* 10% LTCG Tax on sale of Stocks/Equity Mutual Funds | Budget 2018-19 Proposal
* Budget 2018 LTCG Tax on Equity Mutual Funds & Important Implications
In future if I sell some of my mutual funds and my LTCG in equity mutual funds exceeds Rs. 1 lakh, can I set off the LTCG against my Short term capital loss in a debt fund..
Its the other-way round, you can set off STCL on Debt funds with LTCG on equity funds.
Dear Sir,I have withdrawn epf after resignated from job,,,while receiving amount pf dept has deducted the 10% amount ,how to recover the amount,,,,i am currently under 20% slab range……please guide
If you have withdrawn your EPF balance within 5 years of service, such amount is taxable as per your tax slab rate.
So, you have to pay balance 10% more tax on the amount.
TDS & misconceptions.
EPF withdrawals & new TDS rules.
Say I have 100 shares of Rs 10 each with current price of Rs 8 which resulted into short term capital loss of Rs 200. If i am selling shares to realizes loss and buy it on same day with same price of Rs 8 then:
will it be considered as short term capital loss or Intraday transaction resulting into nil profit/loss ?
Dear Mazhar ..These two are two different transactions. The second one, are you referring to SHORT SELL? If yes, then it is intra-day trading.
ITR 2 How to fill short term losses and gain of equity shares of previous years?
Short term: In year 2010–11 : Loss of Rs. 5000, 2011–12: loss of 3000, 2013–14 gain of 2000, in 2014–15 gain of 8000, in 2015–16 Nil. How are these mentioned in ITR 2 for financial year 2014–15 and in financial year 2015–16? in CFL schedule. Do we have to mention losses after reducing profits?
All the returns were filled on Time, In CFL schedule there is no provision to fill the gain. So during submitting Returns for FY 2014–15, How the individual have to fill the losses in CFL schedule for year 2010 to 2012 and what to fill in 2013–14 column? If again someone fill the 5000 in 2010–11; 3000 in 2011–12 and leave 2013–14 empty then it will setoff wrongly and no tax make but correctly tax had to be made on 2000 gain of 2014–15. There may be two ways— during 2014–15 return, in CFL schedule one may write
1. in 2010–11 : 3000 ; in 2011–12 : 3000; in 2012–13 : Nil ; in 2013–14: Nil and this will setoff 6000 from 8000 gain of 2014–15; another way is
2. in 2010–11 : Nil ; in 2011–12 : Nil; in 2012–13 : Nil ; in 2013–14: 6000 that which is carry forward loss shown in ITR2 of Year 2013–14 and this will also setoff 6000 from 8000 gain of 2014–15;
Please let me know which way is the correct one while filling ITR. and In 2015–16 as previous losses are already setoff so all Years in CFL has Nil.
Dear Kapil ..A Chartered Accountant would be the best person to answer your query. Kindly consult a CA.
I have an income from salary and used to file ITR-1. I suffered losses of around 1 lakh in equity shares trading (intraday) and also in derivatives trading for AY 2016-17. Could you help me which ITR form should I fill and where to mention the loss. Can this loss be set off in next Assessment year if I am in profit?
Thanks for the advise.
After going through other posts/blog i feel need to file ITR-4. But after login to e-filing site it gives only 2 options. ITR1 & ITR4S. There is no ITR-4 option. Please let me which form and where to mention the loss.
Dear Mayank..You need to download the excel utility, fill the details and upload the xml.
You may take help of a CA.
In FY 2014-15 I had loss about 5 lakhs from indtraday share trading. I consulted a CA and he put this under Short Term Capital Loss in ITR4 form to be carry forward. However now I came to know that this must be under speculative loss. Was my ITR filling incorrect ?
if yes, what can I do now for last year incorrect ITR ?
Does speculative loss require book keeping and auditing?
Thanks for your help, Sir.
Income from intraday trading in shares is treated as speculative business income. The loss cannot be set off against salary income, if any.
Speculative losses or loss from intraday trading can be carry forwarded for the next 4 years provided you have declared the same while filing your returns within due date. Important to note with speculative losses is that it can be set off only against any other speculative profit you make within the next 4 years and not against any other profits (Section 73(1) of the Income Tax Act, 1961).
You may have to Rectify your return. Kindly contact a trusted CA.
In FY 2015-16, I have STCL of Rs 35000 on equity. I also have LTCG of Rs 45000 on equity.
Can I carry forward this loss of Rs 35000 to the next year? I understand set-off against LTCG on equity is pointless as that is tax exempted anyway? Is that correct?
Yes, you can C/F the losses.
Kindly note that Short Term capital losses can be carried forward only if you file Income-Tax returns on time.
I have a doubt on set off STCL.
Whether STCL can be adjusted on STCG & LTCG made from Direct equities and equity Mutual fund.
What are the sources i can set off my SLCL.
Dear Jananai..STCL on which investment??
In FA 2015-16, I am having the Short Term Capital loss from Shares of Rs 10000/- and Short term Capital Gain from Debt Mutual Fund of Rs 4700/-. Can I set off this Short Term Capital loss from Shares with Short term Capital Gain from Debt Mutual Fund and Cary forward the Short Term Capital loss for next year.
1 – Yes
2 – You can carry forward the Short Term Capital Losses to subsequent 8 fiscal years.
Thanks for answering my query.
I am salaried employee.
If I Buy and Sell shares on same day (i.e intraday trade), will profit/loss be considered as STCG or Speculative business?
Hellow Sreekanth ji: in continuation to my earlier msg posted 2 minutes back – in P&L statement of my equity of icicidirect.com , for 2014-15 the total Business Income is shown as Rs.10481/- after taking into account long term, short time and speculative loss/gains during the year. What does it mean – have I to pay Ra.10481/- to income tax dept. and if so how ? I have other income during the year by way of bank interest , dividend to the tune of Rs.20,000/- approx. Have I to file ITR ( if so which ITR form) . Also how should I pay tax now , since this pertains to last year ( 2014-15). Am panic and look forward to your answers.
If you have speculative income, it is better you file ITR4.
Bank interest amount can be shown under the head ‘income from other sources’. Dividend income is a tax free income and can be shown under the ‘exempted incomes’ schedule. Yes, you may have to pay the taxes (if any) by Aug 31st.
Suggest you to consult a good CA and get your Tax filing done.
In icicidirect.com P&L equity a/c , during 2014-15 is shown as Rs.10481/- against business income (earned through speculative) – though long term and short term eaquity is shown as ( – )92000/- approx. negative. Have I to file ITR ( if so which ITR form ?) or no need to do. This is the first time I am doing equity , mostly intra-day and short term transactions.
I await your response.
hi srikanth gaaru i purchased mutual fund in march 2015 and redeemed in august 2015 with a gain of 18550 do i need to mention in income tax returns? if so how. what documents to submit. thanks
and what happens if i ignone to mention in income tax calculation
This short term capital gain should be shown in ITR for AY 2016-17 and not now. Kindly read my article on MF taxation rules.
I incurred loss of Rs 88000 from futures and options (F&O) trading. At the same time, I made profit of Rs 30000 [as short-term capital gain (STCG)] from delivery-based trading in financial year 2014-2015. Can I adjust my F&O loss from this STCG ? Will it be classified as Capital gains or business income? Please also explain which ITR to file? Other Information: I am a Salaried person and have no other business income.
Loss from the F&O business can be set off against STCG of any other source of income except ‘Salary’. You can file ITR 4 form.
Suggest you to kindly consult a CA / tax expert.
Thanxs for the reply Sreekanth. When will ITR-4 form be available for the assessment year 2015-16?
I am also waiting for that dear :)…may be in few more days..
Thanks for the Reply Sreekanth. However, I could not find the ITR-4 form the Assessment year 2015-16. When will it be realised? What is its filing due date?
Dear Jayant..As of now ITR 4 has not yet been notified. We may have to wait for few more days. Even I have to file ITR4 🙂
I had a talk with a CA, he told me that in case the business turnover doesnot cross 1 Cr but profit in his business is less than 8% of turnover, the accounts needs to be audited. Since the F&O income is deemed to be business income & in my case profit is (better say loss) less than 8% of my grosss receipts, I need to get my accounts audited by a CA.
Is it true?
Kindly follow the suggestions given by your CA. Iam not sure very about this.
Very informative and comprehensive article.
Can the profits made in debt mutual fund sold in Jan 2015 after holding for less than 3 years be adjusted against carried forward long and short term capital losses
Dear Om Prakash,
Short term capital loss (both in equity or debt fund) can to be set off against short term capital gain (equity or debt) or long term capital gain (debt).
Thanks Sreekanth for the such direct to the point information, very productive. Keep up the good work.
Thanks alot dear Manjit. Keep visiting 🙂
I am holding some units of SBI Infrastructure Fund Series-I since 2007. These units have resulted in loss for most of the years. But recently the fund value has regained and now at my purchase rate. What are my tax implications ?
SBI Infrastructure Fund is a thematic/sector oriented scheme. There will not be any tax implications when you redeem these units (as Long Term Capital Gains from equity oriented funds are tax free).In case if you make long term capital losses then these losses can not be set off against other capital assets.
Thanks for your reply. Your reply clarified my doubt.
Wow, Such a informative article. Helps me a lot, thanks for sharing this.
Sumit – Thank you.