Tax Loss Harvesting

Hi, can any one clarify the following example:
If i have shares of 15 companies in 2 demat accounts
i have a total profit of rs.0.80 lac from trading
i have shares of 5 companies which are in loss totalling rs.2.00 lacs, albeit each with varying in loss amount.
I have rental income of rs.1.00 lac
i have filed ITR 4 for last 2 years as business income.
i dont want to carry the loss for subsequent years.
the question is: to be eligible for tax loss harvesting,do i have to sell all the loss making shares in all demat accounts in one go or do i have the right to sell selectively for losing rs.1.80 lac (profit rs.0.80 lac and rental income rs.1.00 lac) so that i can appropriate the profit and rental income in full. i will keep the share which is in loss of 0.20 lac.
those with knowledge of this, pl clarify.

I don’t think your idea is related to Tax Harvesting - or maybe it is - I am not an expert.

Your rental income falls into non-speculative business income, same as F&O segment.

When you record a loss in short term holdings it will become STCL, which can be offset against your STCG current year or carry forward for next 8 years. Please consult a CA for more clarity on this and I would recommend your go through Zerodha Taxation Module, which will answer most of your queries.

Dear Friend,

First of all kindly clear following doubts

  1. as you say you have profit of Rs 80000 from trading…what kind of trading do you do? in FNO segment or in equity segment?
  2. let me know your holding period for shares in your demat account…because if you are holding more than a year then it becomes investment and not trading…

further you cannot setoff your your losses from your rental income ( I guess you are renting your own house) as it comes under the head income from house property…

if your holding period is less than a year and you wish to sell shares of those 5 companies with loss or Rs 2 lacs then it will be considered as loss from speculative trading and you can set off only from Rs 80000 provided it is in intraday equity trading i.e. speculative trading…

Yes, you will have to sell all the stocks that you hold to book the loss.

To adjust this loss against your other income, you have to declare you equity investing as a business, so that it becomes a business loss. If it is a business loss, it can be adjusted against other income heads.

If you show equity investing as a business, you don’t get the benefit of 0 taxes on long term capital gain or flat 15% on short term gain. You will have to pay taxes according to the income tax slab you fall in.

Suggest you go through this module on taxation when trading.

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Hi @nithin - can you please elaborate more on this - does that mean because you use ITR4 [as an individual] or is it we show the investing as a business and not as an individual. I understand conducting Investing as a business would give more brackets such as adjusting profits and how much will be considered a loss [to carry forward] - and not just the net loss [above profits] being carry forward.

Gains made out of stock investing can be either shown as capital gains or if you trade very actively as business income. If you show as business income, you need to use ITR4 and this can be setoff against other income heads (not against salary). Suggest you to go through the chapters here: http://zerodha.com/varsity/module/markets-and-taxation/, I have explained in detail.

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So, you are talking about short-term capital gains and not long term capital gains, right?

It will be very tough for you to selectively show some equity trades as business income and others as capital gains. Best to stick to an either/or approach. Also once you follow a certain way of declaring your income, best to stick to it in the future years as well.

Simple! the ones below 365 days are business and above are as investors :joy: Just kidding.
One more doubt, can we divide our activity per segment, like F&O as business and CNC as an investor?

:wink: and yes, you can show F&O as business and equity delivery as investing.

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I’m facing exact same issue, I have unrealized long term capital loss and want to offset it with F&O profit. If I choose to declared as Trader and as per you if I treat long term capital gain/loss as business income, then LTCL will come under non speculative income and it can be easily offset with F&O profit. Am I getting it right?
@nithin
@TAXIQ.IN

@Quicko

If the idea is to do this just for tax planning, you shouldn’t. You can’t keep switching from trader to investor just based on what is good for you in terms of saving on taxes. But yeah, a trader can offset all non-speculative losses with profits.

Hi @gaurav_sharma,

Yes. your understanding is correct. If you treat Income/ Loss from equity and F&O both as business income then you can set it off.
But as per clarification from Income Tax Department, if you treat income from equity as Capital Gains then you need to follow the same method for subsequent years as well - unless there is a major change in the circumstances.
Therefore, you can not treat Income under Business and Profession head next year to set off losses against profit from F&O.

Here is an article for your reference: Should the sale of shares be treated as Capital Gains or Business Income?

Thanks for replying query…one more thing I want to clear if long term capital loss on equity can be offset with long term capital gain on non equity mutual funds?
@Quicko

Thanks nithin for guidance…

Hi @gaurav_sharma,

Yes, you can set off long term capital loss on equity against long term capital gain on mutual funds. Since they both are covered under the same head of income i.e, LTCG.

Hope this helps! For any further questions feel free to connect with us at Quicko, we’ll be happy to help!