So how does it work? Suresh Surana, founder, RSM India, says: “First, it is imperative to determine whether the capital loss is a long-term capital loss or a short-term capital one.”
For example, losses arising on sale of listed shares or equity-oriented MF units held for up to 12 months are considered to be short-term capital loss. If the holding period is over 12 months, it qualifies as long-term capital losses. In case of debt MFs, short-term is defined as less than 36 months, and above that, long term.
Under the Income Tax
(I-T) Act, taxpayers are allowed to claim set-off of short-term capital loss against both long-term capital gains
and short-term capital gains from other assets, including gains from immoveable property.
Gopal Bohra, partner, NA Shah Associates LLP, says: “However, a long-term capital loss can be set off only against long-term capital gain from any other assets. However, remember it is mandatory to file I-T returns by the due date to carry forward losses to the following years.
Kapil Rana, chairman and founder, HostBooks, says: “After the amendments in the Finance Act, 2018, if you have incurred a long-term capital loss after March 31, 2018, you can set them off against any long-term capital gains, as they are now taxable in excess of Rs 1 lakh.” Another thing to remember, one cannot offset notional losses.
Tarun Birani, founder and CEO, TBNG Capital Advisors, says: “Under these circumstances, there is a strong case for tax
harvesting, but you need to be aware of the exit load risk and market risk,” adds Birani.
Explaining ‘tax harvesting’, Harsh Roongta, certified financial planner says: “Short-term loss can be set off against any capital gains. However, the sold assets can then be bought back again from an unconnected party, so that the investment continues, but at a lower cost now.”