I have a carried forward LT capital (Equities) loss of Rs 1.2 Lakh from last year.
For FY 20-21, I have a LT Gain of Rs 2.3 Lakhs.
My understanding is that after off-setting last year’s loss, my net LT Cap Gain for FY20-21 stands at 1.1 Lakhs out of which I don’t have to pay taxes on 1 Lakh and need to pay tax only on the balance 0.1Lakh.
Yes, your understanding is correct, under section 112A an individual is taxed at 10% on Long Term Capital Gains on the sale of equity shares, equity mutual funds and units of business trust in excess of Rs. 1 lac for a financial year. So in your are to pay tax on INR 10,000.
Earlier long term capital gains was entirely exempt under Section 10(38).
This encouraged diversion of investment in financial assets. It has also led to significant erosion in the tax base resulting in revenue loss. The problem was compounded by abusive use of tax arbitrage opportunities created by this exemption.
Hence, Section 10(38) was withdrawn and Section 112A was introduced; As per Section 112A - LTCG exceeding Rs 1 Lacs are taxed 10%. (meaning upto Rs 1 Lacs - it is exempt).
Is this only for Indian Stocks? Not for the Indians investing on the U.S Stock Market?
Long-Term Capital Gains (LTCG) – The magic number to remember here is 24 months. If you have held the stocks for more than 24 months before selling them and earning capital gains, then you will be liable to pay a capital gains tax at the rate of 20% plus all applicable fees and surcharges. - Groww: https://groww.in/blog/tax-implications-of-investing-in-us-stocks/
I don’t think this is correct. As per my understanding, your carried forward LTCL from previous years gets set off against the total LTCG of the current year, not just the LTCG after the first Rs.1L.
So your net LTCG this year, after set off of previous years’ losses, would be Rs.1.1L. You cannot deduct a further Rs.1L from this amount; your LTCG tax liability this year is on this Rs.1.1L. So your LTCG tax liability will be Rs.11K + cess (/surcharge/…).
One way to be sure would be to try firing up a copy of your Excel or Java ITR of last year, adding a dummy LTCL of Rs.1.2L to the previous year (of that form) and a dummy LTCG of Rs.2.3L to the current year (of that form). See how the form computes your liability. You will see that the Rs.1L “exemption” is used to eat up the first Rs.1L out of previous year’s LTCL, so that your real benefit from that LTCL is only Rs.20K.
In other words: in the current tax scenario it doesn’t pay to have LTCL carried forward, unless the LTCL is in the multiple of lakhs. You lose Rs.1L worth of LTCL in every new FY that you didn’t utilize it.
I am not sure why the experts are saying otherwise on this forum!
Attaching screenshots from Java Utility.
Rs 6 Lacs under Income from Other Sources is included for clear view of tax computation.
Refer #3b(i) for Current Year Long Term Capital of Rs 2.3 Lacs.
Refer #8 for Brought forward loss of Rs 1.2 Lacs.
Refer #10 for Net Capital Gains before 1Lacs exemption of Rs 1.1 Lacs
This is very strange, I distinctly remember that when I was filling my ITR this previous year I played with these numbers (just for the heck of it) and noticed (with dismay!) that the form was computing the tax liability like I described in my earlier comment. I didn’t have any real LTCL to set off last year, I was just trying out numbers to see what would happen, given the (then) new LTCG tax and exemption.
It is quite possible that I was being a fool and ignoring some number or the other in the maze of schedules, which made this happen. It is also possible that that version of the ITR had a bug which was later fixed.
In any case, it is good to know that this tax is calculated in this way!