How to use losses to reduce income tax?

POSTED BY manish ON March 23, 2009 COMMENTS (102)

Are losses good? Do they have any benefit?

When you make a loss, do you feel it has nothing to provide or not at all beneficial. The answer is NO! Losses are bad, but our tax laws gives us a way to utilize them in such a way that we can reduce our income tax liabilities.

reduce tax

Let’s see how 🙂 , don’t worry, we will start from scratch and will explain in detail so that everyone can understand .

Let us talk about capital gains in detail today and let us understand how should we utilize it to minimize our tax liability. Things we will discuss would be stocks, mutual funds, Gold , Debt funds, Real Estate etc.

Understanding Terms and Rules

Capital Gains and Loss : Any profit or loss arises from the sale of capital assets is capital gain or loss. Capital Assets Include Shares, Mutual funds, Real Estate, GOLD etc.

Short Term Capital Loss and Profit : STCL for Equity (shares and mutual funds) is when you sell them at loss before 1 yr, for Real estate, GOLD its 3 yrs.

Long Term Capital Loss and Profit : LTCG for Equity is when you sell it after 1 year, for Real estate, GOLD its 3 years.

Following is the chart showing the tax treatment and time frame for short term for each asset class. Click on the chart to enlarge it.

How to use losses to reduce income tax?
General and Carry forward Rules :

  • Short-term capital loss can be set off against any capital gain (Long-term or Short-term)
  • Long-term capital loss can be set off only against long-term capital gain.
  • A long-term capital loss will have no value in a case where the long-term capital gain is exempt from tax. For example, In case of shares or mutual funds after 1 year, LTCG is exempt from tax, so If you hold a share for more than 1 year and then take a loss, That LTCL will have no benefit. This loss cannot be set off against any other income.
  • A capital loss can be carried forward for next 8 years.

How can you utilize the losses ?

As we know that capital losses can be offset with capital gains, we can utilize this advantage to reduce the tax liability.

The main idea is to create losses to offset any profits. There may be the cases where there is an investment on which you are losing, but still you have not booked the loss, but you can book it and use this loss to offset a profit on which you may have to pay the tax.

Let us see some examples

Example 1 :

Ajay had invested Rs.5 lac in GOLD in 2005 and currently in 2009 he sold it for Rs 10 Lacs, Now he made a profit of 5 lacs and it will be considered as a LTCG, as its after 3 yrs. and it will be taxed at 20% indexed (If you don’t know what is indexed, just forget it, don’t worry ). The tax would be around Rs 1 lacs.

Now Ajay also had invested Rs.10 Lacs in Unitech Shares in Apr 2008. His investment has come down to Rs.4 lacs now. But he thinks that it will go up and he wants to keep it and not sell.

Good !! I appreciate his belief that it will go up again. But what is stopping him from selling it today and then again buying it next day.

Watch this video to know 7 ways to save your tax:

What will happen if he does that ?

If he sells his shares and takes a loss of Rs.6 lacs, He now has made a STCL of Rs.6 lacs and law says that he is allowed to offset it with any STCG or STCL. So now he can offset his 5 lacs profit with this 6 lacs loss and hence, he can save his tax of that 1 lac which he had to pay, also he can carry forward a loss of remaining 1 lac which was not offset.

He can again buy his favorite Unitech share the next day. The only loss he will make is the brokerage charges and any fluctuations which may occur in prices, which will not be much, may be it has gone down and he can buy them later at better prices.

So the point is to generate the loss by selling a losing investment and again buying it back in some days. This will help you cook up the loses which then you can offset with existing profits and hence reduce your tax liabilities.

Example 2

Robert had invested 5 lacs in mutual funds in early 2008 or end of 2007 and currently has a good loss of 2.5 lacs (1 yr is still not complete). This is currently every one state, most of the people have burnt their fingers and made huge losses.

Now he is sad that he made losses, He also had bought some shares before some months and made a profit of 50k. Let us also assume that next year his mutual fund will rise to 4 lacs from current 2.5 lacs, which he sells next year.

Now he has 2 choices to make, let us see 2 cases.

Case 1 : He does not book the loss and holds it .

In this case, he will have to pay profit of 15% STCG on his profit of 50k, and next year he will have his current investment at 4 lacs. When he sells it, it will be a loss of lac which will be LTGL (because he had held it for more than 1 yr).

Case 2 : He books the loss of 2.5 lacs and then again buys it back the same day or next day .

In this case, he has made a STCL of 2.5 lacs (bought at 5 and sold at 2.5), Now he can offset his 50k profit with this loss. Then he would not have to pay the tax and he can then carry his loss of 2 lacs carry forward.

Next year, he sells his mutual funds for 4 lacs and makes a STCG of 1.5 lacs (because he has re-bought this mutual fund and 1 yr is still not complete) .. But he can offset this profit of 1.5 lacs with the carried forward loss of 2 lacs, and still carry another 50k worth of loss forward.

So what’s the advantage of case 2 ?

The advantage is that you can save tax on the existing profit and also generate STCL which you can take forward and save tax on future profits.

There are many people who make losses and don’t bother to show it in their returns, if they don’t show it in returns then they will not be able to use it for offsetting purpose in future. Note, The way I have shown the examples have their own benefit and problems, Its you who have to decide what you want and how to utilize the tax rules to your advantage.

Its smart use of knowledge, not cheating 🙂

I wish you have got some knowledge out of this article, please put your comments/corrections/suggestions so that we can do more discussion.

Also, don’t forget to put your vote on the poll at the top of this page.

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102 replies on this article “How to use losses to reduce income tax?”

  1. Rajeev says:

    Hi,

    In FY 2015-16, I have a LTCG (after indexation) from selling Debt Funds of a little over 6 lakhs. All funds were held for over 3 years and hence qualify for indexation benefit with corresponding tax rate of 20% on this LTCG. I also have carryforward Long Term Capital Gains of over 6 lakhs from previous years (less than 8). My question: Can I offset the 6 lakh LTCG in fy 2015-16 against the carryforward losses? If so, does that mean I have no tax liability on the 6 lakh LTCG. I understand the carrforward LTCG losses will be reduced by 6 lakhs for FY 2016-17. Await your reply to this

    1. Yes thats correct, if you have the LTCL carried forward, you can set off with the profit and pay nil taxes

      Manish

  2. TGWalunj says:

    Hi,
    Being NRI If I am making loss due to housing loan currently (no other taxable income) & have intention to sell property within next three (3) years. Do I have to file IT return to get LTCG tax benefit later? Pl advise.

    1. Yes, unless you record that loss, how will you prove that it actually happened?

  3. Rajiv says:

    Hi Manish,

    I am an NRI , who is doing a little bit of trading through my PIS account with Axis Bank and broker IIFL. My question is that when I sell some shares for profit, STCG is immediately deducted by Axis Bank (as shown in my bank statement). Let’s say, the total deduction of STCG in this year is about 10k.

    However, I also made “realized” losses on other positions in the portfolio, say 20k, then theoretically , I think the tax should be offset 100% ( or is it only 15% of the loss amount, in this case 3k? ) . However, I don’t know how to claim this tax refund . Is it to be done at the time of filing returns or can it be done by bank – or broker – who deducted the STCG in first place ? How do I prove that I have incurred capital loss of 20k ? Is there any form which I can ask my broker?

    1. Tax is never offset directly. YOu need to file the returns and mention it there and if there any access tax , then you can claim it back !

  4. drgoel says:

    can we adjust short term gain fro residential property against short term losses from shares?

  5. Anurag says:

    Hi Manish,
    I have some stocks that are listed outside India. Now, i am making LTCG on those.
    Also, i do have some stocks listed in India listed in BSE. For the stocks listed in BSE, i am making LTCL.

    Can i offset LTCG on stocks listed outside India against LTCL for stocks listed in India ?

    thanks, anurag

    1. No you cant do that as far as I know . Still I suggest take help of a professional CA on this

  6. Anand says:

    Hi Manish awesome article it really helps a lot.
    Just a couple of queries regarding my issue if u dont mind…,
    *In the current year i hv booked a loss of abt 1lac in equity stocks (stcl i guess) while im having a profit of approx. 1lac in equity Mutual funds (stcg).
    Now if i book profit in mutual funds does my loss in stocks acc get setoff by itself ,since it usually doesnt’ show in icicidirect ac in such cases, so do i need to do something when i file my annual return. im an nri in uae by the way.
    *also do the losses in derivatives get set of too with stock/mf stcl/stcg ?
    *iv had losses in previous years, can i bring them forward nw or are they lost?
    thanx bro &God bless u for your help.
    Anand

    1. Hi Anand

      You can do it that way .

  7. Nitin says:

    Hi manish,

    Very nice article and many of thoughts are got clear and what i was looking for. Few question like
    1. Do only equity shares profit/loss will be counted or this is also applicable for profit/loss in derivative segment like Options
    2. What amount of purchasing/selling is considered. Will it with brokerage, STT and other or just a principle amount

    1. Just principle amount will be considered. Also option loss/profit is considered business loss or profit .

  8. jay says:

    I have brought flat on jan 2013 with home loan , I want to sell it in jan 15 . my understanding is sale of flat will be STCG .
    If its STCG then my taxable amount will be (sell price – purchase price)i.e. 5 lakh, my question is I have brought home loan on this flat can I offset interest part of my home loan i.e 2 lakh from 5 lakh STCG , so that my STCG will be 3 lakh ?

    please clarify.

    1. 5 lacs has to be added to your income and tax has to be paid ! , no rescue !

  9. Abi Alex says:

    Hi Manish,
    Thanks for sharing wealth of information. Much appreciated for your time and effort. Here is my query. I purchased a property (a 30×50 plot) in Bangalore a year back. I have taken 20 years loan.
    Now I plan to invest in a second plot with the intent to sell it in 4-5 years. This sale profit I plan to use to pre-closure my loan on the first plot. Do I need to pay long term capital gain in this scenario

  10. saurabh says:

    Hi, I have a question : can you offset STCG out of Debt against STCL on equity MF?

  11. Anant says:

    For NRI case, can short term capital gains form slae of equity shares be adjusted against long term capital loss from sale of equity shares in the same FY?
    Can long term capital loss(equity shares) be carried forward and adjusted in subsequent year against short capital gain (equity shares) in subsequent year?

    1. Yes, it can be done !

  12. SANDEEP says:

    THANKS MANISH , TAX DENA HI PADEGA

  13. SANDEEP says:

    dear manish ,
    1. is there any change in your article pertaining 2013 -2014 taxation .
    2. gifted money to my spouse,she invested in shares and booked some profit ,then What sort of taxation Will come in picture,as she is using as loan and getting earning from it.
    3.if to any advisory body she is paying to get technical analysis ,Whether that expense Will be covered or not as expense made vis a vis her income

    i knoW it sounds someWhat silly but just help me out .

    1. Sandeep

      If the money is spent somewhere, its fine . But if its invested and the profits come, they will be treated as your income

  14. Sonu says:

    Hi Manish
    Thanks for this very informative article. My query is on carry forward of losses from profession. In derivatives trade, I made a loss of 4 lacs in Fy12. I had filed returns by due date and so got it carried forward. Next year (FY13)I made a gain of 1.5 lacs in income from profession. How much is to be carried forward to next year? Is it 2.5 lacs (4-1.5) or is it the entire 4 as 1.5 lacs in income does not come under the tax slab. (that’s my total income for the year, I have no other source). Could you please clarify. Thanking you in advance

    1. Then 4 lacs will be carried forward again !

  15. Satish says:

    I exited ELSS fund (dividend option) 4 years back since fund value had dropped far below initial investment, and i saw no chances of bounce back.
    Similarly I am looking to surrender ULIP which is invested in Balanced and growth funds. Fund value is far below the total premium paid.
    Are there any hopes of saving some tax?

    1. Not in case of tax saving products !

  16. Dhale says:

    I have madea capital gains from plots sell LTCG of 8 lacs and loss in shares -equities and commodities market of 20 lacs , so How can it be treated against LTCG;
    keep me informedat dahaless@gmail.com, as i have ti file ITR

  17. Sanjay says:

    Dear Manish,

    Can you help in calculating my tax liability in following case:
    I am having following for current FY.
    STCG=2,50,000
    LTCL=10,000
    STCL=80,000
    I am carrying LTCG of 5,00,000, LTCL of 30,000 and STCL of 40,000 from previous FYs.

    Thanks in advance.

  18. sandeep says:

    dear manish
    purchased mutual fund of 1 lakh ,sold at the loss of 25 thousand ,within a year
    what is the short term capital loss in this case ,still i have to pay 15% on remaning amount

    1. No , in your case its short term capital gains, no tax for you on any amount remaining, you can carry this loss in your returns so that you can adjust this later

  19. Rajesh says:

    Hi,
    I have a short term capital loss as i sold the property less that what i bought last year. I dont have any other capital gain’s to offset them. Can i use this short term capital loss to reduce my taxable income this financial year?

    Thanks,
    Rajesh.

  20. raghav says:

    Hi Mahish,

    My mother has foreclosed few of her LIC policies, which were not very beneficiary. She got refunded the premium [ after deduction] which is around 50-70% of the total premium she paid. I know she should have made the policies as paid up.

    Now can she get a tax saving on the amount she lost [30-50%] on these policies?

    Thanks
    Raghav

  21. Gopinath says:

    Hi Manish,
    Good article, i have a quarry, I purchased some shares(say A) worth Rs.2 laks in Jan 2011. I have also purchased some shares(say B) worth 1 lakh in April 2012 and sold it in November at profit of RS67,000 total (1.67lakhs) STCG. However the shares of 2011,Jan have lost their value and are now worth Rs1 lakh instead of Rs2 Lakhs. IF I sell the share of A in December 2012 and book losses(STCL) will it be valid for this year 2012 for taxation purpose.

    Can I buy some tax gain bonds(of Rs.67000)STCG to offset any tax payments.
    kindly advice and comment

    1. Yes, you can offset them against each other !

  22. saravana says:

    Can i get tax exemption for moving from one stock to another with stcg .

    Eg , i buy a share for 100 Rs and it raises in value to 150 Rs after one month .Now i book profit and use the amt of 150 to buy three shares of a second company for rs 50 (total 150 reinvested ) after some days (without taking money out of trading account or linked bank account) .

    Will my profit of 50 Rs considered as STCG and taxed. I could not get exact information for this scenario when i googled , i can get similar scenario for mutual funds only.I am new to investing and need clarity in this point as i would like to invest for long term but want to switch stocks to book profits and cut losses. Is that allowed.

    1. Saravana

      Its not possible , there is no provision like this .Each transaction is considered seperate and not combined !

  23. ashish m lonare says:

    I have open an pension policy in 2010 of about 4 lacs one time premium. In this policy with the present NAV i am under loss and the current amount of NAV is 3.7 lacs in 2012.

    Can i get a tax rebate due to this

  24. KUMAR (VERY URGENT PLEASE) says:

    URGENT PLEASE. HAVE TO FILE RETURN TODAY.

    CAN YOU ADJUST/DEDUCT IN THE “SAME YEAR” SHORT TERM CAPITAL GAIN (4000) FROM MUTUAL FUNDS AGAINST LONG TERM CAPITAL LOSS (-7000)FROM MUTUAL FUND IN THE SAME YEAR?

    HOW/WHAT IS THE EFFECT TO PAY TAX?

    1. Yes you can do that

  25. bharati says:

    Hello Manish,

    Kindly let me know how on these figure tax will be calculated
    STCG 46480
    STCL -7864
    LTCG 177055
    LTCL -266920

    HOW WILL I SET OFF THE LOSS /gain

    Bharati

    1. Bharti

      Is it for same year ?

  26. MITESH ANAND says:

    Srry Manish for creating this confusion. I will give an example.

    Suppose, I bought shares of company A at diff points of time in a year. Below can be the buying dates,price & no of shares.

    14th June 2011 – Rs.85 – 100
    14th July 2011 – Rs. 75 – 100
    14th Aug 2011 – Rs. 90 – 100
    06th Sep 2011 – Rs 93 – 100

    Below can be taken as an example of SElling dates, price & no of shares

    09th Dec 2011 – Rs 67 – 100
    10th Jan 2012 – Rs 57 – 100
    12th Feb 2012 – Rs 70 – 100

    Can in this case, we can choose the maximum buying prices for the shares we sold, as all the shares were bought before selling.. Or it should be always 1st in 1st out? 1 more thing Manish Bhai, can the average buying & selling cost be considered also while calculating gain/loss?

    1

    1. Thats a tricky one . Better start a thread on our forum on detailed discussion – https://www.jagoinvestor.com/forum/

  27. MITESH ANAND says:

    Hi Manish,

    How to calculate gain/loss in shares if I only sell a part of number of shares I hold which have been bought at different times in that financial year?

    1. First in first out process will be considered !

      1. MITESH ANAND says:

        Thanks Manish, if I choose maximum buying price(among all the buying prices for that particular company’s shares) for the shares I sold, and then calculate my gain/loss, will that be wrong in the eyes of Taxmen?

        1. No , why .. i didnt get it actaully .. give an example !

  28. Ashish says:

    Hi Manish,
    Thanks for the good article with illustration. It would be good to mention how to classify an equity or a debt MF.
    In this article, it is mentioned that the duration of STCG is 3 years for a debt based MF. Is this correct? As per another article in jagoinvestor (Taxation of MIP’s), STCG duration for MIP (which is debt fund) is 1 year.

    Regards
    Ashish

    1. NO , STCG is always 3 yrs for all the debt funds , MIP , real estate , gold etc .. may be there was a mistake in some other article which mentioned it to be 1 yr

      1. Ashish says:

        Thanks Manish for the prompt reply. But I still think that the minimum holding period for LTCG is 3 years only for real estate and physical gold/e-gold. For debt/equity MF (MIP, FMP, equity MF etc), it is 1 year only.
        Infact even in the following link
        http://www.moneycontrol.com/news/mf-experts/understanding-long-termshort-term-capital-gains_715289.html
        it is mentioned that even for NCDs/Bonds, gold ETF/MF, the minimum holding period for LTCG is 1 year.

        Could you please also double check?

        1. Ahh got it now .. I think you were correct

  29. rohit says:

    Hi

    Very good site… good work must be hard to keep it updated.

    Here I am adding to your workload..
    1. I have a uncle in merchant navy who is a NRI. He says he can gift his salary which is sent from USA in dollars to me by asking his shipping company to directly
    credit it to my a/c in India. He says any NRI money to India is not taxable. Is it true.

    He is my father’s brother-in-law. (i think it falls in definition of a relative for tax purpose) Is this money taxable in my hand? DO i have to do any paperwork to be safe.Is it non taxable due to the relative clause or nri money clause

    1. Rohit

      Its not like that .. He can gift you some money , but then only at that point it would not be taxable, when you invest it , the earnings will carry tax. as this is a little complicated thing , better consult a tax expert by paying him a fee , a lot of taxation things and NRI related stuff is involved in your case !

  30. shankar says:

    Hi Manish,

    Can Losses from equity (short or long) be offset against Income from Salary?

    Regards,
    Shankar.

    1. Shankar

      NO , income from salary is not CAPITAL GAIN !

  31. Rustom says:

    can this example (case 2) of saving tax be used by salary class of people? Like I’m not a businessmen or share market trader but a central Gov Employ my tax gets deducted at source about Rs 6800 pm, how should I save it because its my hard earned money…please suggest

    1. Rustom

      Even you can do the case 2 thing ,but it has nothing to do with your current situation

      Manish

      1. rohit says:

        you can invest in insurance policy and deduct the premium paid from income declared ,thus reducing your taxable income and tax.

  32. Ashok says:

    Nice to read all comments really it is useful for taxation purpose. I would like to know I worked out of India for three year on deputation by getting composite salary equivalent to USD. What so ever I was getting in India being offset against the equivalent USD and by deducting that amount balance being paid there i.e. out of India. Unfortunately or fortunately form 16 issued by parent company. Please let me know whether the amount paid india will be taxable or not.

    1. Ashok

      If your salary was paid in India , that part will be taxable in India

      Manish

  33. Deepak says:

    Manish

    Very nice article , one thing to confirm – you mentioned STCG , LTCG Tax % ( STCG – 15% for Equities etc ) . Is it still the same or it got changed . I read somewhere that STCG is now 20% for equities ? Please confirm

    Regards
    Deepak

  34. Ninthem says:

    Hi,
    I have couple of questions;
    1.I heard that, if wife is not working, working husband can open an DMAT account in her name and invest husband’s money (salary) through her account so that tax from the gain will be very less/nil. Is that correct ??
    or will it be coming in the husband’s income.
    2. I had lost some amount of money in stock market while trading (including day trading and buy and sell in 4-5 months time frame). This happened ssome 2-3 years back. I did not claim this loss at all. Could I claim this loss by any chance ?

    1. Ninthem

      1. Thats not true .. who said that to you ? The income will be husbands income only and it will be taxed

      2. No , its only allowed to be claimed in the same year

      Manish

      1. ningthem says:

        Thanks Manish,
        For 1: Some of my frens were talking abt it so I was curious to know that.
        For 2:
        That means that I could have claim in that financial year only?

        1. Yes .. you can claim the loss (mention in the return form) in the same year. so that you can claim it later (adjust with short term capital gain) . But if you didnt mention it , then its gone

          Manish

  35. Devesh Trivedi says:

    I am a relatively new investor and each of your articles is a startling revelation for me. Keep up the good work!!

    1. Devesh

      Good to hear that 🙂 . Keep reading

      Manish

  36. Vijay says:

    Hi Manish,

    Nice article. If i understood the article correctly, then for claiming long term capital loss only following categories are available
    1. Land/Property
    2. Gold
    Other items like shares/MF are not possible as they don’t have any tax liability in long term capital gains.
    also, i heard some companies declare bonus share at the end year so we can claim STCG loss, have u come across it, I could not find it. How to check this?

    Vijay

    1. Vijay

      Your understanding is correct ,for any doubt ask it here : https://www.jagoinvestor.com/forum/

  37. Pingback: Income Tax « Resources
  38. DR.VIKRAM PAL says:

    very informative article, helped clear lots of taxation queries.
    thx

    1. manish says:

      Vikram

      Thanks for you comments ..

  39. Mac says:

    Hi Manish,

    My Father in law has transferred some 500 shares in my demat account 4 months back as gift. If I sell these now have what will be the tax treatment?

  40. Manish Chauhan says:

    @Shrini

    Thanks for appreciation 🙂

    THe rule for adjusting STCG is that you can adjust it with only STCG from shares or Mutual funds , you cant just decrease 30k from your taxable income , if you have made 30k loss and also made 40k profit , then you can adjust them and show 10k as profit .

    You cant even adjust it with LTCG in share or mutual funds ,as they are exempt from tax 🙂

    Manish

  41. Shrini says:

    Hi Manish, recently from one of my friend i got a chance to get to know about your blog and articles. Your articles are more informative and most worthy to all of us, as we could not able to make ourselves to do such kind of analysis.Great job & jago.. I am having small doubt and correct me if i am wrong regarding using losses to reduce the tax. For example if i bought MF of worth 50K ( 6 months back) and current valuation is around 20K, as per your formula the capital loss would be 50k-20 = 30k, if i book the loss. And consider my total taxable income is 5.10 Lacs. After adjusting this capital loss will i have taxable income as 5.10L-30k = 4.8 Lacs ?

  42. Manish Chauhan says:

    @Mac

    In the example you gave , the holding period is less than 1 yr and hence 15% tax is applicable . No indexation benefit here . Shares are not Capital Assets .

  43. Mac says:

    Hi Manish Chauhan,

    Fantasic quite an elaborative article on Short/Long Term Capital Gain /Loss.
    Had one doubt in case of STCG in equity shares can we use indexation to save on taxes if the year of purchase was 07-08 (June) and year of selling was 08-09 (May).

    Regards…..Manish Macwan

  44. Manish Chauhan says:

    "Short Term CApital gain taxes are deducted at source with ICICI direct"

    Is is happening with you ? Not possible i suppose , Or may be you are confusing it with "STT" securities transaction tax ?

    Check back and let me know

    Manish

  45. SKN says:

    Hi Manish
    Nice post. One question though. Short Term CApital gain taxes are deducted at source with ICICI direct. In such a scenario, will the deducted tax be offset if you sell another lot of shares at a loss?
    Sunil

  46. Manish Chauhan says:

    @Manickkam

    1,2 are correct

    3. You can not include the long term capital gains from equity as there is no tax payable on it . So you can offset the STGC from equity with STCG from equity or LTCG from any thing else .

    4. Not sure

    5. Capital gains rules apply for Real estate in same way .

  47. Manickkam says:

    Hi Manish,

    Let me know if the following statements are correct. I think I read these from some other blogs and not sure whether it is correct.

    1. I can offset short term capital losses with short term or long term capital gains.
    2. Long term capital losses can be offset only with long term capital gains.
    3. Because of the difference in tax structure (dont know the exact reason), the short term capital losses made in shares can be offset only with short term capital gains made with shares (of course, you can include long term gains, but currently it has no tax)
    4. Thus, you can offset Gold ETF profit with one of your loss in other stocks but not with Gold bought and sold outside.
    5. Real estate is a completely different story even though it is termed as capital gains.

  48. Manish Chauhan says:

    @Anonymous

    Not at all . It should be a capital gains or loss … FD’s do not come under the category of capital assets .

    Also understand , Capital assets are something in which there is also a possibility of loss . FDs returns can not be negative .

    Keep visiting the blog 🙂

    Manish

  49. Anonymous says:

    Hi,

    Can you use STCL (say on shares)
    to offset gains in bank fixed deposits?

    Very informative article.
    Keep up the good work.

    Sathish

  50. Manish Chauhan says:

    Swati

    first thing is that dont feel that you ask silly questions … always feel free to ask any kind of questions , however sill they seem . actually they are not .

    So there are couple of things there . I assume that people are them selves responsible to pay there taxes . It may happen that govt may not find out that you made profit or loss. and then you are safe. But it may happen they do the scrutiny and you are in the net . In that case things would be messy .

    If you are buying GOLD ETF , you will do it through your demat , you PAN is linked to your demat account and later govt can find out whatyou did . Even when you purchase physical gold and you use your debit or credit card , all details go in your bank account , which has proof that you made some purchase or sale . In this cases there is a possibility that at the time of checking (if tax people do it) , then you have to prove your stand .

    But if you manage to buy and sell without any proof , then there is a possibility that there is no record, but if somehow tax people find that out , things can get bad .

    Manish

    1. Srinivas says:

      Manish,

      How much fine levy by IT if they found, we didn’t pay tax for short time gains?

  51. swathi says:

    hey Manish,
    nice artcile 1 but i have a doubt -i might sound silly. Suppose I bought gold@1000 and sold it at @1200 within 1 yr but how will govt know that i sold gold at profit? I am sorry if I am something silly- my knowledge in economics is zero.

  52. Anonymous says:

    Hi Manish,
    you are right on the first comment i posted.I read it wrong.Thanks.

  53. Manish Chauhan says:

    Asif , By problems i mean a scenario like

    when you book a loss to create a STCL and then again buy back , next year when you sell the investment , there can be chances that you have some profits on which you have to give tax , which would not have been there otherwise .. i will give you example

    Suppose you buy shares worth 1 lac on 1 jan 2008 and its value is say 50k in 5th Oct 2008 , and you sell it to create a STCL of 50k and rebuy it next day and adjust this loss somewhere .

    Now you do not have any loss to carry forward . Suppose by 5th June 2009 , your investment worth is 2 lacs again. Now if because of some reason you sell it , it will be considered as a STCG of 1.5 lacs (because buy was 50k and sold at 2 lacs) , on which you have to pay 15% tax .

    Where as if you had not sold it earliar , you would have made profit of 1 lac , because the profits would be after 1 year and it would be LTCG . so that way you may losse

    So , thats the reason you should evaluate your situation and aware of it .

    Manish

    1. akash gupta says:

      sir,sorry i didn’t understand why you said that “you do not have any loss to carry forward”as i think that loss should be carry forward to next year and tax should be paid on 1 lac only

  54. Asif says:

    It would be nice if could explain the other problems/aspects of it as mentioned in “Note , The way i have shown the examples have there own benefit and problems”..
    BTW nice enlightening article… keep it up Manish!

  55. Manish Chauhan says:

    @Anonymous

    No , it should be 1 lac only . the person made profit of 5 lacs of gold (LTCG) and loss of 6 lacs on equity (STCL) . So 5 lacs loss was offset with 5 lac of profit and there was remaining 1 lac loss , which was not offset and he can carry it to next 8 years .

    Is that clear ? Or i missed something ?

    Please leave your Name .

    Manish

  56. Anonymous says:

    Hi,Good article,small correction,in Example 1 end of 4th paragraph i guess it shd be 5 lacs loos we can carryforward instead of 1 lac…

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