Set off your losses in equity with gains in gold

Investors with losses from equities should consider tax loss harvesting before March 31. This will help them to reduce the overall taxable capital gains in the portfolio for the financial year.

Equities are treated as capital assets under the Income Tax Act, and losses arising on their transfer may be set off against capital gains from investments such as debt and gold and silver exchange traded funds.

Tax harvesting is a strategy that allows investors to optimise their tax liability by timely realisation of capital gains or losses. Equity investors can realise long-term capital gains (LTCG) up to Rs 1.25 lakh in a financial year without any tax liability. Doing this before 31 March ensures that the benefits, whether in the form of lower taxable gains or usable carried-forward losses, are captured in the same financial year.

“Such an approach, when undertaken in accordance with the set-off and carry-forward provisions of the Act, may assist in managing the overall tax liability while remaining aligned with broader investment considerations,” an tax expert says.

Combined portfolio

Those with gains in some assets and losses in others should evaluate their portfolio as a whole rather than looking at each investment in isolation. Taking this combined view means timing transactions within the financial year. “Investors can strategically realise losses before year end and use them to neutralise gains. Any unutilised losses can be carried forward for up to eight years if income tax returns (ITR) are filed on time,” another tax expert says.

The investor must correctly report all capital gains and losses in the ITR. Another tax expert, says while filing the return, the investor needs to disclose details of all assets sold during the year, both profit-making and loss-making transactions. “Once these details are accurately entered, the set-off of losses against eligible gains is automatically computed within the ITR utility,” he says.

Carry forward losses

The ability to carry forward capital losses for up to eight assessment years is subject to a key compliance requirement —ITR for the year in which the loss is incurred must be filed within the prescribed due date under Section 139(1).

Short-term capital loss (STCL) arising from the transfer of a capital asset may be set off against both short-term capital gains (STCG) and LTCG. In practice, such losses are generally first set off against STCG, and any unabsorbed amount may thereafter be set off against LTCG. In contrast, long-term capital loss (LTCL) may be set off only against LTCG and can also be carried forward for up to eight assessment years.

Once the return is filed within time, the carried forward losses are recorded in the tax system and automatically reflected in subsequent years’ ITR forms.

Source from: https://www.financialexpress.com/money/set-off-your-losses-in-equity-with-gains-in-gold-4186253/