Can I offset long-term capital loss against short-term capital gain?
There has been a major shift in policy on setting off and carry forwarding the unabsorbed loss since April 1, 2002. Setting off loss from one source of income against another is allowed except in the case of capital gains. This is the law as it stands now:
1. Loss falling under heads of income other than 'Capital Gains' can be set off against income from any other source under the same head.
2. Short-term capital loss can be set off against any income under the head 'Capital Gains' i.e both short-term as well as long-term.
3. Long-term capital loss can be set off only against long-term capital gains.
Before this amendment long-term losses could be adjusted against short-tem capital gains thereby allowing a substantial tax saving.
Unabsorbed long-term loss can be carried forward for up to eight years and be used to set off unabsorbed loss in any of those years. Notably, long-term capital gains that arose before the amendment in the law last year are also affected by the change--in the future, even old losses cannot be used to set off short-term gains.
The situation for short-term losses remains unchanged. These can be used to set off both long-term and short-term profits made in the same year. And as earlier, they cannot be carried forward.