Some Finer aspects of Income Tax savings - Part 2

I am sure many of us will be sitting on unrealised losses (i.e losses which we have not booked by selling the loss making stocks and are holding them back in the hope that it will go up in the future) in the recent turmoil in the stock market. If the investments are less than a year old, you one put it to good use and lower your tax liabilities for the current financial year. As per law, one can book their losses on or before March 31 this year and buy back those positions in the next financial year i.e April 1st (provided you believe that the stocks will actually recover atleast in the next financial year). By doing so, the tax on short-term capital gains (if any) can be set off to the extent of the short-term capital losses. Also, at the same time one holds the assets that one had prior to booking the loss.

The key is to sell it before March 31st and buy it back on or after April 1st.

Short-term capital losses for the year can be set off against any capital gains, short or long term, reported under the head, income from capital gains. In case the gains are lower than the losses, the excess short-term capital losses can be carried forward and set off against capital gains for eight successive assessment years.

However the long-term capital losses on security transactions liable to securities transaction tax cannot be offset against any income, and cannot be carried forward for offsetting against any future gains.

However, investors have to bear in mind that short-term capital loss (STCL) first has to be adjusted with any short-term capital gains and only then with long term capital gains on transactions not liable to STT (like sale of gold, real estate, etc)