Long-term capital loss can be adjusted against LTCG
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I was a Dubai-based non-resident Indian (NRI) for about 22 years. However, I returned to India in June 2011. My wife was an NRI for about 16 years and she returned to India in March 2009. In August 2014, after I ceased to be Resident but not Ordinarily Resident and became a resident, I sold my residential apartment in Dubai. The proceeds were credited to my local bank account in Dubai. I then used a Dubai-based foreign exchange company to transfer the funds to my wife’s resident Indian bank account and mine as well. My wife opened fixed deposits (FDs) with these funds from which she is earning interest income. Will I be allowed to file a separate tax return for her or are clubbing provisions applicable for the interest income? I incurred a long-term capital loss (LTCL) in the property sale transaction. Can I include the full LTCL amount for carry-forward, or should I include a part of it my wife’s tax returns too?
Under the Indian income tax law, if your spouse earns an income from investments out of the money gifted by you, such income may be clubbed with your income. Thus, the interest earned by your wife from FDs may be clubbed with your income as income from other sources and included in your tax return as taxable income. As you qualified as a ‘Resident and Ordinarily Resident’ in India during the financial year (FY) 2014-15, your global income and assets had to be reported in your India tax return. Income or loss on sale of your residential apartment during the year had to be mentioned in your India tax return.
As you were the sole owner of the apartment, the income or loss would have to be reported only in your tax return. As you held the residential apartment for more than three years, the capital loss will be classified as LTCL. LTCL can only be adjusted against long-term capital gain. In case of an unadjusted loss, the same can be carried forward for eight years immediately succeeding the year in which the loss is incurred. Such loss can be carried forward only if the tax return of income or loss of the relevant financial year in which loss is incurred is furnished on or before the due date of filing as per Indian tax laws.
In your case, if you had not filed a tax return for FY15 within the due date, i.e., 31 August 2015, you may not be able to claim or carry forward the capital loss. However, if you had filed a tax return within due date without reporting the capital loss, you may revise your tax return by 31 March 2017 to report carry forward loss.
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