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What is capital asset?

For the calculation of capital gains tax, the following capital assets are considered.

• Listed Shares
• Unlisted Shares
• Equity Mutual Funds
• Debt Mutual Funds
• Real Estate
• Gold
• Listed Bonds
• Zero-Coupon Bonds
• Other capital assets, if any

Determination of capital gain

• Whether a capital gain is a short term or long term is determined by the following.
  
  • Asset type
  • Holding period
  
  
• Holding period means how long you keep the asset with you before you sell it.
• For example, if you sell an equity mutual fund unit before a year of purchase, then it will qualify for short term capital gain.
• If you sell after a year of purchase, it will qualify for long term capital gain.

The following table describes various assets and their holding period for short term and long-term capital gains.

Offset (adjust)capital loss

• If you sell a capital asset and incur loss, then it is called capital loss. You need not pay any capital gains tax on the loss amount.
• The Income Tax department gives you an option of offsetting (or adjusting) the capital loss against a capital gain.
• It means that you can use capital loss to reduce the amount of tax to be paid on the capital gain.

Note: Capital loss can't be offset against any income under the head "Income".

Example 1:

• You had a capital gain of Rs. 10,000/- from a sale of a capital asset. Also, you had a capital loss of Rs. 6,000/- from a sale of another capital asset.
• Now, you can offset (adjust) the loss of 6,000 against the gain of 10,000/-. That is, 10,000 minus 6,000
• After offsetting, you will have

Capital Gain = Rs. 4000/-

Capital Loss = Rs. Zero

So, you need to pay capital gains tax only on 4000/-

Rules about offsetting capital loss

• There are some rules about offsetting capital loss against capital gain. They are given below.
• A capital loss should be offset against capital gain only. It should not be offset against any income
• A short-term capital loss (STCL) can be offset against short term capital gain (STCG) or long-term capital gain (LTCG)
• A long-term capital loss (LTCL) should be offset against only long term capital gain (LTCG)

Can an Individual Carry forward capital loss?

• There may be situations where you can't offset the capital loss against any capital gain. In this case, you can carry forward capital loss to the next financial years.
• During the next financial year, you can try to offset the capital loss against capital gain, if any.
• If you are still unable to offset, then you can still carry forward to the next financial year.
• This way, you can carry forward capital loss to a total of 8 financial years.
• For this, you will need to do the following.
• File Income Tax returns with the capital loss mentioned in it
• Keep the tax file returns safe
• During the next financial year(s), use the previous year's tax returns and try to offset capital loss

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