A few days ago, Suhas made an interesting observation in the Facebook group, Asan Ideas for Wealth: “I noticed that if we carried forward LTCL (long term capital loss) from previous years then that 1L exemption is not applicable”. Why is this so? Is this an error? Let us find out.
This article was made possible thanks to the expertise and help rendered by Manmohan Sethumadhavan and is authored by Anjesh Bharatiya a 30+ taxman by profession and a Chemical Engineer by education.
If you have earned Long Term Capital Gains (LTCG) you are supposed to file your return in ITR-2 if you are salaried or in ITR-3 if you are a businessman or professional. As you may know, LTCG from the sale of shares/equity mutual funds (covered under section 112A) up to Rs 1 lakh is exempt from tax. However, if you have incurred Long Term Capital Loss (LTCL) from some other avenue, there is a catch.
This LTCL is set off against the LTCG under section 112A without providing the benefit of the Rs 1 lakh exemption. You might think this is an error in the ITR-2 return filing utility. Let’s find out more about this.
Setting off losses: You can set off losses incurred under a head of income against gains/profits from other heads subject to certain conditions. Both intra-head and inter-head set-offs are possible. The rules are tabulated below:
🔥Secure your future with our Robo-advisory tool trusted by over 3,500 investors and advisors. From effortless retirement planning to funding your children’s biggest dreams, turn your financial goals into reality. 🔥
Subscribe for money management solutions via email! (Link takes you to our email sign-up form) Join 32,000+ readers in our community.
👉 New Tool Alert! NaviPlan: A Privacy-Focused Multi-asset Tracker and Goal Planner 👈
| Type of loss | Intra Head Adjustment Allowed | Inter Head Adjustment Allowed |
| Short Term Capital Loss (STCL) | Yes. Only against STCG & LTCG | No |
| Long Term Capital Loss (LTCL) | Yes. Only against LTCG | No |
| Loss from House Property | Yes | Yes (up to Rs 2 lakh) |
| Loss from speculative business (Includes intraday trading in stocks) | Yes. Only against gains from speculative business | No |
| Loss from specified business | Yes. Only against gains from specified business | No |
| Other business losses | Yes | Yes (except against salary income) |
Also, losses which couldn’t be set off can be carried forward for different time limits and can be set off in the future years as per the rules laid out in the above table. Both STCL & LTCL can be carried forward for 8 years.
Setting off LTCG from shares against other LTCL
If you have earned LTCG from shares of less than Rs 1 lakh and have also incurred LTCL from some other source (like from the sale of land), you might think that the other LTCL will be set off against the LTCG from shares only after the free limit of Rs 1 lakh allowed under section 112A and you will be able to carry forward the entire LTCL for setting off in future years. But this is not how it works. Let’s understand this with an example.
1. I sold stocks of a company after 1 year and earned LTCG of Rs 44,230/- (marked in red)
2. I also sold some land and incurred an LTCL of Rs 2,00,000/- (marked in red)
3. Now, the ITR utility does not set off the LTCL after considering the Rs 1 lakh exemption under section 112A. So, the total LTCL is not Rs 2,00,000/-. Instead, the utility sets off the LTCL of Rs 2,00,000/- from the sale of land against the LTCG from the sale of shares of Rs 44,230/- even though LTCG from the of shares is exempt up to Rs 1,00,000/-. So, the total LTCL for the year is only Rs 1,55,770/- which can be carried forward to the next year.
What happened here? The exact wording of the relevant part of Section 112A is: The tax payable by the assessee on the total income referred to in sub-section (1) shall be the aggregate of—(i) the amount of income-tax calculated on such long-term capital gains exceeding one lakh rupees at the rate of ten per cent
So, the gains of up to Rs 1 lakh under section 112A are still technically LTCG and will be set off against any other LTCL. The section does not provide any exemption up to Rs 1 lakh but only says that tax is calculated only on the portion above Rs 1 lakh. Also, if there are brought forward LTCL from previous years, they too will be set off against this LTCG under section 112A (even if the LTCG is below Rs 1 lakh). This set-off is not optional.
In summary, for people having both LTCG under section 112A and other LTCL, the benefit of Rs 1 lakh will not be available to the extent of the LTCL. There is no glitch in the ITR 2 utility. And the LTCL will be carried forward only after setting off against the LTCG under section 112A, whatever the LTCG.
We are on Google News
Use this button to add freefincal.com as a preferred personal finance source on Google News.
Explore 1,400+ videos on YouTube!
Subscribe to get posts via email!
Join 32,000+ readers and get free money management solutions delivered to your inbox! (Link takes you to our email sign-up form)Join our WhatsApp Channel
Explore our products
🔥Join our community of 9000+ users! 🔥- Use our Robo-advisory Tool to create a complete financial plan! More than 3,500 investors and advisors use this! Use the discount code robo25 for 20% off. Plan your retirement (early, normal, before, and after), plus non-recurring financial goals (such as child education) and recurring financial goals (such as holidays and appliance purchases). The tool helps anyone aged 18 to 80 plan for retirement, plus six non-recurring and four recurring financial goals, with a detailed cash flow summary.
- Our Flagship Course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! More than 3,500 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market conditions! Watch the first lecture for free! One-time payment! No recurring fees! Lifelong access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
- Join the freefincal investor circle! An exclusive space for investors, advisors, fintech employees and students to access financial planning and insurance tools, mutual fund and stock analysis tools, coding strategies and Excel macros for data extraction. 750+ members are now part of our investor circle.
- Increase your income by getting people to pay for your skills! More than 900 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner seeking more clients through online visibility, or a salaried individual looking for side or passive income, we will show you how to do it by showcasing your skills and building a community that trusts and pays you. (Watch the 1st lecture for free). One-time payment! No recurring fees! Lifelong access to videos!
- Portfolio Tracker! Track your mutual funds and stock investments with our Google Sheet!
- We also publish monthly screeners for
Our Podcast: Let's Get Rich With Pattu
On Spotify: Let's Get RICH With PATTU! Every single Indian CAN grow their wealth! On Audible: Listen to the Let's Get Rich with Pattu Podcast
Listen to the Let's Get Rich With Pattu podcast on YouTube.
Now watch Let's Get Rich With Pattu தமிழில் (in Tamil)!About The Author
Dr M Pattabiraman giving a lecture
- Dr M. Pattabiraman (PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras.
- He has over 14 years of experience publishing news analysis, research and financial product development. He has over 28 years of teaching and research experience. He is also a public speaker and keynote presenter.
- He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free, AUM-independent investment advice.
- Connect with him via @pattufreefincal on X LinkedIn YouTube
- Pattabiraman has co-authored three print books.
This book helps you ask the right questions and find the right answers. It also includes nine online calculators to create custom solutions.
(2) Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want. 
Both the boy and girl versions of "Chinchu Gets a Superpower".
Most investor problems stem from a lack of poor decision-making. We made bad decisions and money mistakes when we started earning, and we spent years undoing them. Why should our children go through the same pain? What is this book about? As parents, what if we had to groom one ability in our children that matters not only for money management and investing but for every aspect of life? My answer: Sound decision-making. So, in this book, we meet Chinchu, who is about to turn 10. The story follows what he wants for his birthday and how his parents plan it, while also teaching him key ideas about decision-making and money management. What readers say! 
Feedback from a young reader after reading Chinchu Gets a Superpower!
Must-read book even for adults! This is something that every parent should teach their kids right from a young age. The importance of money management and decision-making based on their wants and needs. Very nicely written in simple terms. - Arun.
About freefincal & its content policy
Freefincal is a News Media organisation dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact Information: To get in touch, please use our contact form. (Sponsored posts or paid collaborations will not be entertained.)Our publications
- Your Ultimate Guide to Travel. This is an in-depth exploration of vacation planning, including how to find affordable flights, budget accommodations, and practical travel tips. It also examines the benefits of travelling slowly, both financially and psychologically, with links to relevant web pages and guidance at every step. Get the PDF for Rs 300 (instant download)
- How to profit from content writing: Our ebook is for those interested in getting a side income via content writing. It is available at a 50% discount for Rs. 500 only!