I have brought forward long-term capital loss from last year, which is eligible for offset against the current year’s long-term capital gains. During the current financial year, I have made some long-term capital gains as well as some long-term capital losses, with the result that the final position is net capital loss. Is it permissible to set off the long-term capital gain of this year against the brought forward long-term capital loss incurred in the preceding eight years (without adjusting the long-term capital loss of this year) and carry forward the long-term capital loss of this year for the next eight years?
To illustrate with an example. Long-term capital loss (AY- 2024-2025) - 20,000 For AY (25-26)
Long-term capital gain - 60,000
Long-term capital loss – 1,00,000.
Can I set off the long-term capital gain of ₹60,000 against my previous year’s loss of AY 24-25 and carry forward this year’s long-term capital loss of ₹1,00,000 to the subsequent years?
Section 70 allows the set off of loss from any source falling under the same head of income against income from any other source under the same head. This is subject to certain exceptions where the loss from that specific source cannot be set off against another source of the same head during the year and has to be carried forward to a subsequent year for set off against income under the same source. For example, speculation loss under the head “Profits and gains of business or profession” can only be set off against speculative profits during the same year and subsequent years.
Likewise, section 71 allows the set-off of net losses under one head of income against income under the other head with certain exceptions. The unabsorbed loss, if any, can be carried forward to the subsequent year. Such a carry-forward is allowed for only eight years immediately succeeding the year for which the loss was first incurred.
So first, the profits or losses of the current year have to be worked out after giving effect to Section 70 of the Act. Once the impact of inter-source set off of profits and loss has been made, only the brought forward losses can be set off against the remaining profits of the current year if the inter-source computation results in profits. If brought forward, losses are allowed to be set off first without giving effect to permitted inter-source adjustment; it will defeat the purpose of restriction on the number of years up to which losses of a particular year can be carried forward for set off.
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Balwant Jain is a tax and investment expert and can be reached at jainbalwant@gmail.com and @jainbalwant on his X handle.
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