I am quite new to investments, started just this year. I am trying to understand different tax rates in different scenarios and wanted to test my understanding.
I cannot seem to enter negative numbers in any of these, and it’s unrealistic that there will never be a loss. So I don’t understand how do people report losses.
Is it the case that it’s limitation of this calculator only and the actual ITR page will support negative values?
Or, is it the case that ITR page will have the values here automatically because of the new plans of “pre-filling”? And, it’ll not be required by us to report negative (and positive as well) values?
Or, is it really the case that nothing needs to be reported in case of loss, and blank or zero field is sufficient? And tax will be calculated on gains only and losses won’t be adjusted with gains or other incomes?
When reporting taxable income, we are supposed to set off losses against incomes first, and then report only the remaining income. So the capital gains to be reported here are those obtained after setting off (subtracting) both current-year losses and losses brought forward from previous years. Of these, since the brought-forward losses happened first, they have to be set off against incomes, first.
If you have STCL brought forward from previous years, and STCG in various quarters of the current year, then the amounts to be entered in these boxes will be zero till the first quarter in which there is a net profit (after offsetting previous and current-year losses).
In particular: if you have STCL brought forward from previous years, and your STCG in the current year is not sufficient to offset all of those losses, then all the four boxes will have zeroes in them.
The carrying-forward of remaining losses happens in a different schedule (CFL), and is not affected by what you enter in these boxes.
Just hypothetical follow up: Suppose that there is loss for first one or two quarters (this year or carried forward) and then it’s positive for next quarters. And it so happens that gain in those later quarters are sufficient to trade off the loss in first quarters. In this scenario, how to adjust those losses?
Adjust against salary income, pay slab rate on reduced income and capital gain rate on unchanged profits
Adjust against profit, pay capital gain rate on reduced profit and slab rate of unchanged salary
As I said in all my previous threads as well, I’m really unfamiliar with these things so I don’t really know how likely are these scenarios to occur in real life. So, if you can also suggest where can I read up on these details, in straightforward common English instead of complicated legal terms and clauses, that’ll be very helpful.
I am not sure what you mean by the word “adjust” here, given how you say the adjustments may happen. Please read up on how capital losses are set off.
In short: capital losses can only be set off against capital gains, not against other kind of income (such as salaries). Within this there are further restrictions; please ask Google about this.
So, in particular, you cannot use capital losses to reduce your taxable salary income. So your option (2) is the correct one. Again, there are nuances; read up on setting off of capital losses.
The image you have shared is explicitly asking for bifurcation of the Capital Gains for the calculation of Advance Tax.
So, in case you have no profits or losses, nothing to be entered in the table. Losses will be auto calculated based on the details added in Schedule Capital Gains.
Sorry to bother you again, but I just wanted to confirm that I understood correctly.
So, the way I interpret this is if I have taxable salary income (in lakhs), and I have a short term capital loss (in hundreds) arising from debt funds only, then I will have to pay income tax at slab rate on my salary amount only, and that loss needs to be carried forward. And this carried forward loss will continue to carried forward for at most 8 years. However, had it been a gain instead of loss, then it’d be added to my salary income and taxed at slab rates.
Can you please confirm this understanding as a yes/no? This contrasting behaviour is very surprising to me, so wanted to verify it once more.
Your understanding is correct, except for this part:
Capitals gains are notadded to salary and the sum taxed; capital gains and salary income are taxed separately. If your salary income is beyond the exempted amounts then yes, as per current rules STCG will be taxed as if it was added to the salary. But it lives in its own slot, which is considered apart from salary for computing tax. This is why we have the perceived asymmetry.
Here is an illustration of this difference. If your salary income puts you just below a certain tax slab, and you have STCG which, if added to the salary, would put you in the higher slab, then you will remain in the lower slab. If STCG was added to salary you would be pushed to the next slab in this case, but since it is not added to salary, you won’t go to the next slab. At least, this is what I understand happens; I may be wrong.
Regarding your next point, it seemed very interesting to me. I certainly didn’t know that. I tried it out using the same link I shared in my first question. I used ₹499000/- as salary income, and tested three scenarios:
A) no capital gain
B) ₹2000/- STCG under section 111A
C) ₹2000/- STCG not under section 111A
As it happens, A and B shows same taxable income, and same tax under salary head, but C has higher. It does seem to suggest that debt (or non equity oriented, if you prefer) STCG will change tax slab, or at least that’s what I get just from this calculator link. I have no other document to back it up though.
