Many invest in property, mutual funds, and stocks hoping for gains. Not all investments, though, yield profits; occasionally you will also suffer losses. The good news is your tax load may be lessened with the capital losses tax rule. Let’s simplify things so we may better understand them.
Definitions of Capital Gains and Losses
Selling anything—like shares or real estate—for more than what you paid results in capital gain.
Selling for less than the purchase price results in capital loss.
The capital losses tax rule lets you now modify these losses to lower your total tax load.
Kinds of Capital Losses
Short-term capital loss – loss from selling an asset within 36 months (or 12 months should listed shares be sold).
Long-term capital loss—loss from selling following a holding period (based on the asset—more than 36 or 12 months).
How Losses of Capital Support Taxes
Should one investment yield profit while another loses money, you can use that loss to lower the tax on your profit.
Set-off is this and here’s how it operates:
- One can set off short-term losses against both long-term and short-term gains.
- One can set off long-term losses just against long-term gains.
Under capital losses tax rules, this can lower your taxable income and cut your tax bill.
Bearing Forward Losses in Capital
Not made sufficient gains this year to balance your losses. Not an issue.
You have eight years to carry forward capital losses.
To achieve this, though, you have to timely file your Income Tax Return.
Typical Mistakes to Avoid:
- Not noting losses in your ITR.
- You cannot set off losses against salary or business income; thinking you can.
- Not recording purchase and sale figures.
Simple Example
Purchasing shares for ₹1,00,000, you sold them for ₹80,000 → ₹20,000 capital loss.
Additionally you made ₹50,000 profit selling mutual funds.
Not the whole amount; now you pay tax on ₹30,000 (₹50,000 profit – ₹20,000 loss).
Your tax is less due capital losses tax benefits.
Thought Notes Final Thoughts
There is never fun in loss. However, clever use of capital losses tax rules in India helps to ease suffering.
Don’t overlook your losses as you file taxes. Actually, with some foresight, they will save money down road.