New Income tax bill: Get one-time set off of long-term capital loss against short-term capital gains from


 The Indian government, in its latest income tax bill, has introduced a significant proposal to allow taxpayers a one-time set-off of long-term capital losses (LTCL) against short-term capital gains (STCG). This move represents a marked shift from the existing tax regime, which permits set-off of losses only against similar types of gains (i.e., LTCL against LTCG and STCL against STCG). The primary objective of this amendment is to offer taxpayers greater flexibility in managing their capital gains and losses while boosting compliance with tax regulations.

Under the current framework, short term capital gain tax on assets such as equity shares and mutual funds attracts a tax rate of 15% (under Section 111A of the Income Tax Act) if securities transaction tax (STT) applies. For instance, suppose an investor has earned a short-term capital gain of ₹5,00,000 from equity trading in FY 2023-24 and, at the same time, incurred a long-term capital loss of ₹3,00,000 from the sale of property. Earlier, the loss could only be carried forward for set-off against future LTCG. But with the new bill, the ₹3,00,000 LTCL can now be set off immediately against the STCG, reducing the taxable STCG to ₹2,00,000. Correspondingly, the short-term capital gain tax liability would drop from ₹75,000 to ₹30,000, resulting in significant tax savings.

This proposed mechanism is expected to simplify the tax computation process and provide relief to taxpayers who experience diverse portfolio losses. However, the one-time nature of this benefit indicates that taxpayers must carefully evaluate its utility based on their specific financial circumstances.

Summary:

The new income tax bill proposes a one-time set-off of long-term capital loss (LTCL) against short-term capital gains (STCG), breaking the conventional rule of type-specific loss adjustment. Currently, short-term capital gain tax on STCG is levied at 15% for certain investments. This provision provides a significant tax-saving opportunity for investors. For example, if an individual earns a ₹5,00,000 STCG and undergoes a ₹3,00,000 LTCL, they can now immediately offset the loss, reducing their tax burden substantially. Investors are advised to thoroughly assess the implications of this provision on their portfolio.

Disclaimer: 

Investors must gauge all the pros and cons associated with trading in the Indian financial markets and consult professionals to understand the financial implications of the tax regime changes.


Location: India

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