Set Off And Carry Forward Of Losses On Shares
Hi friends, I am back with another blog. First of all wish you everyone A Merry Christmas. In continuation with my last blog, wherein we learnt about “Disallowances of Expenses on Exempt Income”, in this blog we shall discuss regarding “Set Off & Carry Forward of Losses on Shares”. An individual can have income from more than one head. The Income Tax Act prescribes rules to set-off loss and carry forwards off losses on shares.
Losses In Speculation Business:
A speculation transaction is a transaction in which a contract for purchase or sale of any commodity, including stocks and shares is ultimately settled otherwise than by actual delivery or transfer of the commodity.
Losses of speculation business can be set-off only against profits of speculation business. Such losses can be carried forward for 4 Assessment Years and can set-off against speculation income only. Loss from a non speculation business can be set off against income from speculation or non speculation business. In case, loss is to carried forward and adjusted against future income, the taxpayer must ensure that the tax return is filed by due date. In case tax return is not filed by due date, the loss cannot be carried forward.
However, in terms of the specific provisions contained in the Income Tax Act, 1961, a transaction in respect of trading in derivatives carried out, normally referred as Futures & Options (F & O), on a recognized stock exchange shall not be treated as speculative transaction even if no deliveries are effected. The loss on these F & O transactions is considered as business loss. The said business loss can be set off against any head of income (Income from business/profession, Capital gain, Income from House Property, Income from other sources) other than Salary during the same year and loss not set off can be carried forward for next 8 years but such carried forward loss can be set off against business income only and as mentioned earlier, the tax payer needs to file the tax return in time to carry forward the losses.
In addition to the above, Finance Act, 2013 has made amendment in sec 43 (5) due to which Profit / Loss from Commodity trading on a recognised stock exchange is also now treated as non-speculative.
Shares Held As Capital Assets:
Losses under the head capital gains cannot be set off against income under any head of income. Where income from a particular source is exempt from tax, loss from such source cannot be set off against income chargeable to tax. Therefore, long term capital loss from shares where STT is paid cannot be adjusted against any long or short-term capital gain from any source. It cannot be carried forward to the next year too.
In case of capital assets on which STT is not paid, the long term capital loss can be set off against long term capital gain (LTCG) only. It can be carried forward to next 8 Assessment Years and set off against Long Term Capital Gains (STCG). Short term capital loss can be set off against the same source or long term capital gain. It can be carried forward to next 8 assessment years and set off against LTCG or STCG.
Shares Held As Stock In Trade:
The loss is assessable as business loss. The same can be set off against any source or any head except income from salary. It can be carried forward to next 8 Assessment Years and set off against any business income. Loss of a business in year one can be set off against profit of some other business in year two.
The loss on sale of Derivatives/ Futures & Options that is without delivery is assessable as business loss. Loss on sale of currency futures at MCX Stock Exchange Ltd and in NSE/BSE is also assessable as business loss.
Return Of Loss:
A loss cannot be carried forward unless it is determined in pursuance of a return filed within the due date. Therefore if return of loss is not filed within the due date, then short or long term capital loss & loss of a speculative or non speculative business cannot be carried forward.