Say, your lender charged Rs 300,000 interest on the home loan in the financial year 2017-18. You can set off Rs 200,000 against other heads of income and carry forward the remaining amount. If you have the house on rent, you can set off Rs 100,000 against it. This provision is most beneficial to homeowners who are close to finishing off their home loans.
This is the only provision where a person can set off losses even if he has not filed the returns by the deadline. “For a taxpayer to set off income from any other head, they need to file their returns on time. Else, the losses lapse,” says Suresh Surana, founder, RSM Astute Consulting Group.
Capital losses can be tricky: If you incurred a loss when selling stocks, gold, property, or on redeeming mutual fund units, the setting off depends on the tenure of holding. If you sold assets within three years and had a loss, it’s classified as short-term capital loss. After three years it will be a long-term capital loss. The only exception to this is equities, where short-term capital loss may arise if you sell within one year. A short-term capital loss can be adjusted against short-term capital gains as well as long-term capital gains. If you sold stocks at a loss within one year of investment, for example, you could set it off against gains made on selling a house.
A long-term capital loss, however, can be set off only against long-term capital gains. “Equities, again, is an exception here. As there was no tax on the gains made after holding it for over a year, a taxpayer cannot set off equity losses against any head,” says Kumar.
Experts also point out that many taxpayers get confused whether they can set off losses against incomes that allow indexation benefit on the gains. Say, you have a long-term capital loss in a debt fund, which allows investors to take indexation benefit. Can it be set off against gains from bonds that don’t have the indexation provision? Tax experts say that the law does provide for such set offs.
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Intra-day trading is speculative income: If you engaged in intraday trading, the tax laws classify it as speculative income, and the regulations to set off such losses are slightly different. “You can set off such losses only against gains made from income from speculative business. Also, you can carry forward such losses only for up to four years,” says Wadhwa.
Business or profession losses: The net loss under the head income from business or profession can be set off against any other heads of income, except for the head income from salary. In subsequent years, it can be set off only against business income for eight years. “Depreciation loss can be set off against any head of income in current as well as subsequent years, and it can be carried forward indefinitely,” says Surana.
Experts point out that if clubbing provisions apply to gains, they will also apply to the loss. “Also, no loss can be set off against income from winnings lotteries, crossword puzzles, races, card game, and any other game or gambling or betting,” says Chandak.