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In my IT return, I am carrying an LTCL (Long Term Capital Loss) of ₹1.50 lakh on equity transactions for the past two FYs. During FY 2023-24, I have Long Term Capital Gain (LTCG) of ₹0.65 lakh on equity transactions. Should I adjust this LTCG against the carried forward LTCL loss of ₹1.50 lakh?Or, as the LTCG is less than ₹1 lakh, can I treat this as an exempt income and continue to carry forward the loss of ₹1.50 lakh?
Vasuki Ramanujapuram
As per the Income Tax Act, 1961 (the Act), if you incur a Long Term Capital Loss (LTCL) from the sale of capital assets, you can carry forward this loss for eight consecutive years. During these years, you can set off the LTCL only against Long Term Capital Gains (LTCG) from other capital assets.
In the facts of your case:
- You have a carried forward LTCL of ₹1.50 lakh from earlier financial years.
- In FY 2023-24, you have earned LTCG of ₹0.65 lakh.
The LTCG will be initially adjusted against the brought-forward LTCL. Therefore, your LTCG of ₹0.65 lakh will be set off against the LTCL of ₹1.50 lakh. After this set-off, the remaining LTCL ( ₹1.50 lakh - ₹0.65 lakh = ₹0.85 lakh) can be carried forward to subsequent years for adjustment against future LTCG. As stated earlier, you can carry forward this LTCL for up to eight assessment years immediately following the assessment year in which the loss was first computed.
In a nutshell, you will have to declare the brought-forward LTCL of ₹1.5 lakh in your Income-Tax return form under the ‘Schedule BFLA’; the same shall automatically get set off from the capital gains income of ₹65,000. Thus, there is no option to defer the set-off to the subsequent financial years.
The exemption provision for LTCG under ₹1 lakh (Section 10(38)) applies only if your LTCG from equity shares is ₹1 lakh or less in a financial year and there is no LTCL available for adjustment.
It is important to disclose the brought-forward loss in your current year tax return to ensure its proper carry-forward to subsequent financial years. Failure to disclose it may result in issues regarding the carry-forward of losses.
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