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Offsetting Losses

JP Singh had earned some money by trading stocks and also booked losses. We tell him he can offset these losses against the gains to reduce tax liability

I earned Rs 25,000 by trading in stocks this year. I also booked losses of Rs 5,500. Can I offset these losses against my gains and reduce my tax liability?
-JP Singh

According to Section 74 of the Income Tax Act, you are allowed to offset your losses and even carry forward them for eight assessment years immediately succeeding the assessment year for which the loss was first computed. If a loss relates to a short-term capital asset, it shall be set off against income under Capital gains in respect of any other capital asset. If loss relates to a long-term capital asset, it shall be set off against income, if any, under the head Capital gains assessable for that assessment year in respect of any other capital asset not being a short-term capital asset. You need to note the difference in treatment of loss on a short and long term capital asset. As in your case it is a short term capital loss, you can offset it against the income under capital gains (Rs 25000). So you can pay taxes on Rs 19500.

Now that you are done with your tax planning for this year, it would be ideal to start early for the next fiscal. You might have managed to get lower NAVs because of the recent market crash this time but as we stress you should never try to time the markets. Start investing in tax saving mutual funds via the SIP route. Just compute your annual salary and calculate how much you wish to invest in tax saving mutual funds. Just equally divide the amount in 12 instalments and get started.

There is also a reason to cheer as the tax slabs for the coming financial year have been revised significantly. So here is a ready reckoner for you to calculate your tax liability for next year and get started at the earliest. We are also recommending a few funds where you can start investing via SIP from early April.


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