We recently published a Step-by-step guide to entering MF and share capital gains in ITR2 (or ITR3). Many readers wanted to know how to set off & carry forward capital losses in ITR2 and ITR3. So here is a quick guide.
If you are new to entering capital gains and losses in the ITR utility, we strongly recommend that you familiarize yourself with the forms using the above guide and then come back here.
The basics:
- Long Term Capital Loss can be set off only against Long Term Capital Gains.
- Short Term Capital Losses can be set off against both Long Term Gains and Short Term Gains.
- There is no need for the user to remember all this. The ITR utility will take care of this automatically.
- Always remember that the ITR utility is also an income tax calculator – the most authoritative one.
- A transaction resulting in a capital loss is not different from one resulting in a capital gain. Treat both as the same and enter them individually. The utility will adjust the loss and gain.
- Remember: If you have some loss and gain in some financial year, the utility will mandatorily offset it. You cannot carry forward the full loss without offset. An example will help clarify this.
STCL is Rs. 900, and LTCG is Rs. 500. The utility will mandatorily set the net capital loss as Rs. 400 and automatically carry forward this amount for future offset. You cannot carry forward the entire loss!
This is a screenshot of short-term capital loss offset with short-term capital gain in the online ITR2 utility.
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As is evident, the utility automatically offsets the applicable loss with the gain and computes the total STCG and total LTCG.
Schedule E shows the set-off of the current year capital losses with current year capital gains.
Schedule CFL shows details of losses to be carried forward to future years. Notice that the net loss for the current financial year is automatically carried forward to future years.
As mentioned above, the carry-forward to future years is possible only after offset with gains in the current assessment year (if any).
In the above schedule, you can add losses incurred in previous assessment years to compute the set-off in the current assessment year. However, if there is a mismatch in this data with that entered in the corresponding past income tax return, it may delay processing and result in further scrutiny. So use with utmost caution and ensure the data is accurate.