People investing in the stock market or mutual funds often make a big practical mistake. When they suffer huge losses instead of profits in investments during a financial year, they assume that there is no need to file Income Tax Returns (ITR) anymore. Especially those investors who do not have any other taxable income think so. According to tax experts, not filing ITR in a loss year can be very heavy on your pocket in the long run. If you do not file your return within the stipulated time limit, you lose your legal right to carry forward this capital loss to the next years. The effect of this will be that in future, when you get profit from investment, you will not be able to adjust this old loss with that profit and you will have to pay more tax to the government.
Rule to save tax on future profits
According to tax experts, despite incurring losses, filing ITR on time gives you legal permission to adjust your losses from future earnings. Gopal Bohra, tax partner of tax consultancy firm NA Shah Associates, gives important information on this. He says that even if a taxpayer is not incurring any tax liability that year and has only incurred capital loss from equity or mutual funds, still filing ITR on or before the due date is a very beneficial deal. By filing returns on time, you can carry forward this loss for the next 8 years. In future years, whenever you make profits from shares or mutual funds, you can reduce your tax liability significantly or completely reduce your tax liability by deducting this old loss from that profit.
This rule applies to all types of investments
Many investors have a misconception that this rule of carrying forward losses applies only to the buying and selling of shares. Tax experts have made it clear that no matter what the medium of investment is, the tax rules are exactly the same for everyone. Whether your loss is from equity shares, equity mutual fund, debt mutual fund or gold ETF, if you want to carry forward this un-adjusted loss for future use, then you will have to file ITR within the due date. The department does not allow carry forward of losses after missing the prescribed deadline.
short term deficit reduction system
You can easily adjust equity losses against profits from other capital assets, within the rules. Two different categories have been decided for this. The first is short-term capital loss (STCL). If you have suffered short-term losses from stocks, you can adjust them against both short-term and long-term capital gains. Be it profit from shares, selling property, gold or debt mutual funds. In contrast, the rules for long-term capital loss (LTCL) are quite strict. It can be adjusted only and only against Long-Term Capital Gains (LTCG).
Choose the form according to your profile
Choosing the right ITR form depends entirely on the nature of your financial transactions. Investors who are reporting only capital gains or capital losses arising from shares, mutual funds or other capital assets are generally required to file ITR-2 form. On the other hand, if you do intraday trading in shares or trade in futures and options (F&O), then it is considered as business income in tax terms. In such a situation, you should choose ITR-3 form. Before filing ITR, investors must match the transactions recorded in their AIS and TIS with their broker’s report so that there is no hindrance in availing the benefit of tax exemption in future.
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