Stock markets have tanked big time, spreading widespread, contagious panic, pain and gloom the world over.
For equity investors, the pain is, of course, real though not unusual given that share prices routinely go through bullish and bearish cycles.
An array of preferential tax treatment on equity investment offers some balm to investors bloodied by capital losses.
Tax gains on capital losses
Your investments may not always result in capital gains. A loss from the sale of a long-term capital asset (such as investment in equity or equity mutual funds held for more than 12 months) can only be set-off against long-term capital gains.
On the other hand, a loss from short term capital asset is allowed to be set-off against both short term and long-term capital gains.
For equity investors, the pain is, of course, real though not unusual given that share prices routinely go through bullish and bearish cycles.
An array of preferential tax treatment on equity investment offers some balm to investors bloodied by capital losses.
Tax gains on capital losses
Your investments may not always result in capital gains. A loss from the sale of a long-term capital asset (such as investment in equity or equity mutual funds held for more than 12 months) can only be set-off against long-term capital gains.
On the other hand, a loss from short term capital asset is allowed to be set-off against both short term and long-term capital gains.
How to set-off capital losses
Accordingly, to obtain the maximum benefit one may use the following order of priority to set-off capital losses:
First, try setting off against short term capital gains not subjected to securities transaction tax (STT); this will save 30 per cent tax (since slab rates are attracted);
Second, try setting off against long term capital gains not subjected to STT and thus save 20% tax.
Last, try setting off against short-term capital gain subjected to securities transaction tax.
Where capital loss cannot be set-off and tax mitigated during the ongoing financial year, it can be carried forward to the next year provided you file a loss return along with your return of income. In fact, you can carry forward such losses for up to eight years.
Accordingly, to obtain the maximum benefit one may use the following order of priority to set-off capital losses:
First, try setting off against short term capital gains not subjected to securities transaction tax (STT); this will save 30 per cent tax (since slab rates are attracted);
Second, try setting off against long term capital gains not subjected to STT and thus save 20% tax.
Last, try setting off against short-term capital gain subjected to securities transaction tax.
Where capital loss cannot be set-off and tax mitigated during the ongoing financial year, it can be carried forward to the next year provided you file a loss return along with your return of income. In fact, you can carry forward such losses for up to eight years.
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