Do you bear in mind the attention-grabbing rule whereas setting off losses from earlier years? Whereas setting off long-term capital loss introduced ahead from earlier years in opposition to capital positive aspects from fairness beneath Part 112A, the loss is first set off in opposition to the positive aspects, and solely then is the exemption of ₹1 lakh (₹1.25 lakhs from FY 2024–25 onwards) utilized.
That is really difficult, as generally the exemption goes unutilised, or in different instances, the carry-forwarded losses diminish yearly by being set off in opposition to positive aspects – even when the positive aspects are beneath the edge of exemption.
Concerning the writer: Manmohan Sethumadhavan is a freelancer, investor, and private finance fanatic “in the hunt for absolutely the reality.” You possibly can observe Manu on Twitter @ManuTsr. He’s the writer of the above-mentioned article. A few of his different articles are:
This 12 months onwards, there’s one other attention-grabbing interpretation. For the reason that tax charge on long-term capital positive aspects (LTCG) apart from fairness has been lowered from 20% to 12.5%, we now have two classes of LTCG taxed on the identical charge of 12.5%: fairness and non-equity. Nonetheless, solely capital positive aspects from fairness benefit from the exemption of ₹1.25 lakhs beneath Part 112A.
If a taxpayer has no different revenue besides LTCG, he would have an unutilised portion of his fundamental exemption restrict (primarily based on slab charges), which can be utilized to cut back his capital positive aspects tax legal responsibility. Normally, when a number of capital positive aspects beneath totally different tax charges exist, the capital acquire with the very best charge is allowed to be set off first – benefiting the taxpayer.
However right here’s the query: Which LTCG must be set off first – fairness or non-equity – when each are taxed on the identical 12.5% charge?
At first look, one could marvel why it issues if the tax charges are the identical. Nevertheless it does matter – as a result of LTCG from fairness carries the extra advantage of the ₹1.25 lakh exemption, and whether or not or not this exemption will get used relies on when it’s utilized.
Think about this illustration for an individual having 3 lakhs every capital positive aspects from each fairness and non-equity.
| Technique A | |
| Steadiness in fundamental exemption restrict | 3,00,000 |
| Capital positive aspects (12.5%) apart from fairness | 3,00,000 |
| Much less stability in fundamental exemption restrict | -3,00,000 |
| Web positive aspects | – |
| Capital positive aspects (12.5%) from fairness | 3,00,000 |
| Much less exemption u/s 112A | -1,25,000 |
| Much less stability in fundamental exemption restrict | – |
| Web positive aspects | 1,75,000 |
| Whole Capital positive aspects taxed @12.5% | 1,75,000 |
| Tax @ 12.5% | 21,875 |
| Technique B | |
| Steadiness in fundamental exemption restrict | 3,00,000 |
| Capital positive aspects (12.5%) from fairness | 3,00,000 |
| Much less stability in fundamental exemption restrict | -3,00,000 |
| Much less exemption u/s 112A | – |
| Web positive aspects | – |
| Capital positive aspects (12.5%) apart from fairness | 3,00,000 |
| Much less stability in fundamental exemption restrict | – |
| Web positive aspects | 3,00,000 |
| Whole Capital positive aspects taxed @12.5% | 3,00,000 |
| Tax @ 12.5% | 37,500 |
In Technique B, if the set-off in opposition to the fundamental exemption restrict is utilized first to capital positive aspects from fairness, there can be no room left to use the exemption beneath Part 112A, and it could go unutilised. Consequently, the tax payable can be greater.
Sadly, the calculator on the Revenue-Tax portal seems to be following this methodology. We’ll have to attend for the discharge of the official utilities to see how this interpretation is dealt with.
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