Long term capital loss

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Querist : Anonymous

Querist : Anonymous (Querist)

24 August 2011 Dear Sir,
A pvt ltd company having business of related to Travel Services have incurred a long term capital loss in the previous year 2010-11 AY 2011-12 from buy/sell of Shares in the Stcok Market.How this will be treated pls explain.The company is eligible for Tax Audit.

CA Ankit Verma

CA Ankit Verma (Expert)
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24 August 2011 If Securities Transaction Tax [STT] was deducted on the sale transaction leading to Long term capital loss [LTCL] then as per section 10(38) of Income Tax Act 1961, such LTCL shall not be allowed to be carried forward.

The concept behind this is since the LTCG from transaction eligible for STT deduction is exempt u/s 10(38), even the LTCL from such transaction shall not be allowed to be forwarded for setoff.

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Querist : Anonymous

Querist : Anonymous (Querist)

24 August 2011 Then the amount of LTCL will be adjusted with the Business Income or Not.Pls advise

CMA Ramesh Krishnan

CMA Ramesh Krishnan (Expert)
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24 August 2011 LTCL can be carry forward for 8 years and adjust LTCG

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Querist : Anonymous

Querist : Anonymous (Querist)

25 August 2011 I am confused with Two types of Answers.
One is saying LTCL is not allowed to carry forward as it has resulted by paying STT.(share market)
CA Ankit Says So.
CMA Ramesh Krishnan Advised that LTCL can be carry forward for 8 years.
Pls help I am confused.
Thanks

CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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25 August 2011 In my view, losses or expenses incurred towards income exempt from tax can not be claimed against taxable income.
.
Exempt income is not forming part of total income. Income includes losses also. As such exempt loss will also not form part of total income.
.
While going into the process of computation of income under a head,
we have to first compute the income of a particular source.

From Income of such source, we have to deduct allowable expenses and exemption U/s 10 within that source only. Like we are doing while computing Salary Income.
.

The net resulting income is available for set off and carried forward.
.
Here, due to Section 10(38) within the source the income vanishes and net source income comes to 0.
Any LTCL will not come out.
Question of carrying forward does not arise when the resultant is 0.
.
Had there been a Non STT-LTCG, say of Rs. 5lac, on the same logic it can not be set off against STT-LTCL.

However, STT-Short term losses
can be set off against Non STT- Gains due to inter source adjustment.
.
In this case, the LTCL has to be written off and can not be claimed to be c/fd.
.
As such I support Ankit's view.

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Querist : Anonymous

Querist : Anonymous (Querist)

25 August 2011 Dear Sir,
Thanks Paras Sir,
Hence if Business Income is Rs.5lacs for E.g and LTCL is 1lac then Income Tax will be calculated on full 5lacs.Pls advise

CA Ankit Verma

CA Ankit Verma (Expert)
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25 August 2011 Yes.... LTCL has to be ignored now as well as for later years..

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Querist : Anonymous

Querist : Anonymous (Querist)

25 August 2011 Thanks Ankit,
Hence the LTCL amt will be decuted from Capital.Pls advise how we will treat from Accounts point of View.

CA Ankit Verma

CA Ankit Verma (Expert)
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25 August 2011 Yes LTCL will be deducted from capital.

But remember in accounts calculation of LTCL shall be on actual basis [ ie. sale price - pur price directly ] without indexation as available in Income Tax.

Querist : Anonymous

Querist : Anonymous (Querist)

25 August 2011 If we deduct from Paid Up Capital of the Company.What is the provision for Capitalising the Share Premium Fund or Gerenal Reserve of the Company.I think We cant decuct LTCL from General Reserve or Share Premium account.Pls advise

CA Ankit Verma

CA Ankit Verma (Expert)
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25 August 2011 The deduction from capital treatment can be given only for individual assessees.

If you are asking for the Companies, you cannot deduct from paid-up capital, GR or share premium.

You have to debit P&L A/c by LTCL amount as calculated directly without indexation
[i.e. Sale Price - Pur Price]

While calculating PGBP for ITR such LTCL will be added back to P&L.

Querist : Anonymous

Querist : Anonymous (Querist)

25 August 2011 You are very Right Ankit But I have people advising that it can be carry forward as per sec 74.Pls clarify as I m very Confused Now.

CA Ankit Verma

CA Ankit Verma (Expert)
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25 August 2011 Well even I have come across such suggestions like same given in the below link which says you can carry forward-

http://www.taxmanagementindia.com/wnew/print_Article.asp?ID=439

But if we apply interpretation rule for the word "income" it can be positive as well as negative. So same treatment of exemption must apply both in case of Gain as well as Loss. Otherwise it will beat the objective of section.

You may refer the below link & read the Q&A of 2nd question(by Sunil D. Joshi)-

http://www.capitalmarket.com/cmedit/story11-37.asp?sno=364786

Well I will go with 2nd opinion, i.e. no carry forward of loss.

Hope this helps u....

Querist : Anonymous

Querist : Anonymous (Querist)

25 August 2011 OK ANKIT.THANK YOU VERY MUCH FOR YOUR ADVICE.
GOOD DAY