How to profit from losses

The Income Tax Department is more often than not seen as the cloud; seldom is it the silver lining. In a rare exception, it provides muchneeded succour to those ravaged by the stock markets. So, if you are among the thousands of investors who lost money in the market collapse last year, there’s some solace. Any short-term loss suffered in the last financial year can be adjusted against profits made in subsequent years. What’s more, this loss can be carried forward for up to eight financial years.

Short-term losses are the ones you incur when you sell shares or equity funds within a year of buying them. But calculating these deficits is not an easy task. The sale of stocks and funds are on a first-in, first-out basis. This means the shares you bought first will be considered to be sold first. So, if you bought some more shares of a company that you already owned and subsequently sold some, the shares you bought first will be deemed to have been sold first.

One needs to be cautious while making the calculation because what you assume to be a short-term loss could actually be a long-term one, which cannot be offset against any other gain or carried forward. Just as there is no tax on long-term capital gains from equities and equity-oriented mutual funds, there is also no provision to set them off against any other gain.

You can carry forward losses (both short- and long-term) for other investments as well. But keep in mind that you can do so only if you file your return by the due date. If you file after 31 July, you will not be allowed to avail of this benefit.

What can be carried forward
Short-term losses from equities and equity-based mutual funds.
Short- and long-term losses from debt-based funds and gold funds.
Short- and long-term losses from real estate, gold and silver.
Losses in business and selfemployment.

When it comes to real estate, the losses resulting from a sale can be carried forward. However, there is another type of loss that does not come from selling property. The interest paid on a home loan is considered a loss. Taxpayers can adjust up to Rs 1.5 lakh a year on this count against any income, including salary and business income, if the house is selfoccupied. If a property has been given out on rent, the entire loss (interest paid) can be adjusted against the income. However, the interest paid on a home loan cannot be carried forward.

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