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How to set off losses?

The income generated from transactions of stock markets could be taxed under Profits and gains of business and profession or Capital Gains. It depends on the nature of investments, which means if they are of an investment nature or just done as a business activity. It depends on many factors such as the source of money invested, the reason behind the investment, the average period of holding the investments, etc. if it is going to be taxed as capital gains or business income. These facts would be considered for deciding under which head it would be taxed. The transaction occurring within a day in shares would be treated as a speculative transaction.

Also Read about the stock market here: Stock Market for beginners

Rules and Provisions for capital losses under Income Tax Act

• The loss incurred from the stock market could be short-term or long-term. It depends upon the period of holding.
• Listed Debentures and Bonds, Shares, and Equity Mutual funds that are not held for more than 12 months are considered short-term Capital Assets. The tax rate is 15 per cent. Section 111A of the Income Tax Act covers the Capital gains or losses from the sale of these types of assets.
• Unlisted debentures, debt Mutual Funds and Golds ETFs, etc. would be considered if they are held for less than 36 months.

Rules:

• Capital losses like loss incurred on stock market investments would not be set off against any other heads such as Income from business or professions, income from salary, etc.
• Short-term capital losses would be adjusted under LTCG (Long term Capital Gains). However, a long-term capital loss would not be set off against short-term losses.
• It is possible to carry forward the capital loss for 8 years from the year it was incurred in. If the capital loss could not be adjusted under the same head in the same year, then it could be carried forward to the following financial year. If there are any capital gains in the next year, they could be used to set off the previous losses.
• If the person has stated the losses in ITR and files return before the due date only then capital losses could be carried forward.

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Conclusion

Many people invest their money in the stock market to earn profits. However, not everyone who invests gains only profits, some of them incur losses in such transactions. People must know how to set off these losses in Income Tax Returns to reduce their tax liability. They can get tax deductions while filing an Income tax return. 

Watch this video to know about how to set off losses in ITR

Disclaimer: This article is intended for general information purposes only and should not be construed as investment or legal advice. You should separately obtain independent advice when making decisions in these areas.