I had a huge loss in stocks in 2007-2008. I am a salaried employee. Is there any way I can show this loss in my tax return and get some tax benefit?

?Sachin Kulkarni

Well, you can set off capital losses only against capital gains and not against any other income. We suggest that you carry forward these losses to next year and so on. You can carry forward for eight years. In the subsequent years, if you earn any capital gain, you can set off these losses and thus optimise your tax liability. Please note that taxable long-term capital gain can be set off only against long-term capital loss, whereas short-term capital loss can be set-off against both short-term capital gain as well as taxable long-term capital gains.

Experts are predicting that the Sensex will go down to 10,000/11,000 levels. I am invested in various mutual funds for a few lakh. I wish that I should redeem up to 80% or so and restart investing again via SIPs when the Sensex starts picking up again. Kindly advise.

?Prakash Sharma

This will be the wrong thing to do. When the index was at the 20,000-21,000 levels these very experts predicted 30,000 and above. Now they are doing the opposite thing. Please understand that there is no such thing as an expert when it comes to stock markets. We all learn everyday. Also, even if one has a little expertise, predicting the index level is astrology and not stock or market analysis. Please hold your investments over five years or so. Mutual funds are long-term vehicles and if you lose heart within four months, you should never have invested in the first place. Be a long-term investor in the true sense.

U/s 48, the income chargeable under the head ?Capital gains? shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset expenditure incurred wholly and exclusively in connection with such a transfer. I desire to now whether the interest paid on a housing loan can be considered as a part of the cost of acquisition.

?Rohit Tendolkar

We personally strongly feel that you cannot do so. The reasons ?

1. Interest is handled separately u/s 23(2) that allows the annual value of a self-occupied property to be taken as ?nil? if it is in the occupation of the owner. If he has only one residential house and cannot occupy it owing to his employment, business or profession at another place, the annual value will be taken as nil if it has not been let out. If there are more than one such self-occupied properties, only one property, as per his choice can be taken as nil and the rest are construed to be let-out.

Where the property was acquired or constructed with capital borrowed on or after 1.4.99 and such acquisition or construction is completed within three years from the end of the financial year in which capital was borrowed, the amount of deduction under this clause shall not exceed Rs 1,50,000. Where the annual value is taken as nil, no deductions will be allowed except deduction in respect of interest paid or payable on funds borrowed, from whatever source.

In the case of let-out or commercial properties, the entire interest is deductible. If the interest paid is for a period prior to the year in which the property was acquired or constructed, it shall be deducted in 5 equal annual installments commencing from the year in which the house was acquired.

2. Sec 55 states, ?…but does not include any expenditure, which is deductible in computing the income chargeable under the head … income from house property…? All this means that the interest cannot carry with it, and rightly so, the dual benefit, one for capital gains and another for deduction from income on housing property.

It appears that the department has exactly the opposite view. Page 10 of chapter II of the booklet ?Taxpayers Information Series-3 – How to Compute Your Capital Gains? published by the Directorate of Income Tax, New Delhi in 1995 states, ?Any expenditure incurred in connection with such purchase, for example brokerage paid, registration charges, and legal expenses, is added to price or value or consideration for the acquisition of the asset. Interest paid on moneys borrowed for purchasing the asset is also part of its cost of acquisition.? This means that an assessee can take the interest component of the EMIs of each financial year and apply the corresponding inflation indices. This would be a complicated exercise but worth the trouble.

Interestingly, all the subsequent notifications and clarifications are silent on this issue, may be because the authorities have realised that they have erred. We claim that as long as the authorities do not negate this declaration, you have a right to claim the double benefit.

?The authors may be contacted at wonderlandconsultants@yahoo.com