Have you taken a big hit in the stock market, Submitting your income tax return can help you get the benefits
News Topical, Digital Desk : There is some good news for the investors who are facing huge losses in the stock market or mutual funds. Despite losses, it’s important to file your Income Tax Return (ITR) You can carry this capital loss forward for the next 8 years by filing your ITR within due date and save tax on future profits.
Those who buy stocks or mutual funds often make a major practical mistake. They think if they incur huge losses instead of making profits in a financial year, there is no need to file Income Tax Return (ITR). This is particularly true for those investors with no other taxable income. If you don’t file your ITR in a loss year, it can prove costly for you in the long run, tax experts say. If you miss the stipulated time limit to file your return, you lose the legal right to carry forward your capital loss to subsequent years. This means that when you make profits on your investments in the future, you will not be able to offset those profits with these losses and you will end up paying more tax to the government.
Rules to avoid tax on future earnings
If you incur a loss, tax experts say you can legally set off your losses against future earnings if you file your ITR on time. Gopal Bohra, tax partner at NA Shah Associates, a tax consultancy firm, has some important information on this. According to him, it is very good to file your ITR on or before the due date even if a taxpayer has no tax liability in that year and only suffered a capital loss on equity or mutual funds. If you file your return on time, you can carry this loss to the next eight years. You are allowed to deduct this past loss from the profit in future years when you earn a profit from stocks or mutual funds, which reduces your tax liability considerably, or even results in no tax liability.
This rule applies to all kinds of investment
A lot of investors think that this loss carryforward rule applies only when you buy and sell shares. Tax experts said the tax rules are the same for everyone, no matter the investment vehicle. In case your loss is from equity shares, equity mutual funds, debt mutual funds or gold ETFs and you want to carry forward this unadjusted loss for future use, you need to file your ITR within due date. The department does not allow losses to be carried forward beyond the deadline.
Arrangements to mitigate short term losses
It is very easy to offset equity losses against profits from other capital assets under the rules. For this purpose two separate categories have been created. The first is short term capital loss (STCL). If you have made a short-term loss on shares, you can adjust it against both short-term and long-term capital gains, whether the gain is from shares, property sale, gold or debt mutual funds. But the rules for long term capital loss (LTCL) are quite stringent. It can be set off only against capital gains of long-term nature.
Select the form that fits your profile.
Pick your ITR form based on your financial transactions. In general, ITR-2 is filed by those investors who are only disclosing capital gains or capital losses from shares, mutual funds or other capital assets. However, if you are trading in shares intraday or trading in futures and options (F&O), then for tax purposes it is treated as business income. If this is the case, you should choose the ITR-3 form. To avoid any hiccup while claiming tax benefits in future, investors should match their AIS and TIS transactions with their broker’s report before filing ITR.
