Your Queries – Income Tax: Grandfathering provision doesn’t affect set-off of long term capital loss from equity

June 08, 2021 1:30 AM

One needs to file ITR only when gross total income in a financial year exceeds the basic exemption limit.

Income from share trading and practicing law may be declared as business income and capital gains from investing in shares may be declared under ‘schedule CG’ of the ITR form.Income from share trading and practicing law may be declared as business income and capital gains from investing in shares may be declared under ‘schedule CG’ of the ITR form.

By Chirag Nangia

With a grandfathered rate if there is long term capital loss can we carry forward the loss to adjust against future gains or we have to just forget the loss for ever? Earlier we were showing the loss and adjusting them with future gains.
—UM Ramachandran
With effect from April 1, 2018, long term capital gains in excess of Rs 1 lakh on sale of equity shares, units of equity-oriented mutual funds were made taxable at 10%. However, in order to protect the investor interests, gains up to January 31, 2018 were grandfathered. Grandfathering provisions that apply to shares acquired before January 31, 2018, do not affect a taxpayer’s entitlement to set-off/ carry forward long-term capital losses.

Accordingly, the long term capital losses from transfers executed on or after April 1, 2018 can be set-off against any other long term capital gain and balance, if any, can be carried forward to subsequent eight years. Notably, long term capital gains on sale of equity shares/ equity oriented mutual funds were exempt up to March 31, 2018. Therefore, losses from transfers effected before the cut-off date would be treated as dead loss and shall not be allowed to be set-off.

I earned less than Rs 20,000 in FY20-21. In March 2020, I opened a demat account and started investing and trading. I made losses in both day trading and short term investing. How should I file my ITR?
—Ajay Sharma
One needs to file ITR only when gross total income in a financial year exceeds the basic exemption limit. However, the Income Tax Act allows set-off and carry forward of losses only if the return of income/loss of the year in which loss is incurred is furnished on or before the due date of furnishing the return. So, even though your total income is below the basic exemption limit, in order to carry forward your losses and reduce your tax liability for subsequent assessment years, you must file a return. Since you have income from business and profession, you may declare income in ITR 3. Income from share trading and practicing law may be declared as business income and capital gains from investing in shares may be declared under ‘schedule CG’ of the ITR form.

The writer is director, Nangia Andersen India. Send your queries to fepersonalfinance@expressindia.com

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