ITR Filing: How do we set off and carry forward capital losses?

Income Tax Filing: Accurately reporting capital gains and F&O losses in your ITR is essential for compliance. Capital assets include real estate, shares, and jewellery, with specific short-term and long-term gains rules. F&O losses are non-speculative business losses.

Shivangini
First Published25 Jun 2024, 03:43 PM IST
Ensuring accurate reporting of capital gains and F&O losses is crucial for financial compliance as the ITR filing deadline approaches.
Ensuring accurate reporting of capital gains and F&O losses is crucial for financial compliance as the ITR filing deadline approaches.

Income Tax Filing: As the deadline of July 31 for filing Income Tax Returns (ITR) approaches, taxpayers who have engaged in transactions involving shares, mutual funds, jewellery, real estate, and derivatives trading must ensure accurate reporting of their capital gains and losses. The correct disclosure of these transactions is essential for maintaining financial compliance and avoiding penalties.

Also Read | Income Tax Return: What is NIL ITR and who should file it?

Capital assets and tax implications

Under Indian income tax regulations, various properties held by individuals, regardless of their professional or business connections, are categorized as capital assets. This includes:

Real Estate: Land, houses, shops, and apartments.

Financial Instruments: Shares, mutual funds and gold bonds.

Personal Items: Jewelry, precious gemstones, ornaments made from silver, gold, or platinum and artworks.

The classification of capital gains into short-term and long-term depends on the asset's holding period before its transfer. Generally, assets held for more than 36 months are considered long-term, with specific exceptions such as:

Listed Shares and Securities: Held for 12 months or more.

Unlisted Company Shares: Held for 24 months or more.

Immovable Properties: From the Assessment Year 2018-19, held for 24 months instead of 36 months.

Also Read | ITR filing: Top mistakes to avoid when filing Income Tax returns

F&O trades and taxation

With the growing popularity of trading in Futures and Options (F&O), understanding the tax implications of F&O losses has become increasingly important. F&O are financial instruments that enable investors to buy or sell assets at a predetermined price and date in the future. While offering significant rewards, F&O trading also carries inherent risks, including substantial losses.

For income tax purposes, F&O losses are classified as non-speculative business losses. These losses must be reported under the ‘Profits and Gains of Business or Profession’ section in the ITR form. Notably, F&O losses can only be offset against profits from the same business or profession within the same assessment year. These losses can be carried forward for up to eight consecutive years if not fully utilised.

Ensuring accurate ITR filing

Selecting the correct ITR form is crucial for precise reporting. For instance:

ITR-3: Suitable for individuals and Hindu Undivided Families (HUFs) conducting F&O trading as a business.

ITR-2: Appropriate for those engaging in F&O trading as an investment activity.

How to report F&O losses

Accurate reporting involves a systematic approach:

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Gather all relevant trading statements, contract notes, and transaction details related to F&O trading. Determine profits or losses from each F&O transaction, considering the difference between purchase and sale prices, along with associated expenses such as brokerage fees. Use the appropriate ITR form to report the calculated F&O losses accurately.

 

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First Published:25 Jun 2024, 03:43 PM IST
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