Do you keep in mind the attention-grabbing rule whereas setting off losses from earlier years? Whereas setting off long-term capital loss introduced ahead from earlier years in opposition to capital good points from fairness below Part 112A, the loss is first set off in opposition to the good points, and solely then is the exemption of ₹1 lakh (₹1.25 lakhs from FY 2024–25 onwards) utilized.
That is really tough, as typically the exemption goes unutilised, or in different instances, the carry-forwarded losses diminish yearly by being set off in opposition to good points – even when the good points are under the brink of exemption.
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This 12 months onwards, there may be one other attention-grabbing interpretation. For the reason that tax charge on long-term capital good points (LTCG) apart from fairness has been decreased from 20% to 12.5%, we now have two classes of LTCG taxed on the identical charge of 12.5%: fairness and non-equity. Nevertheless, solely capital good points from fairness benefit from the exemption of ₹1.25 lakhs below Part 112A.
If a taxpayer has no different earnings besides LTCG, he would have an unutilised portion of his primary exemption restrict (primarily based on slab charges), which can be utilized to scale back his capital good points tax legal responsibility. Normally, when a number of capital good points below completely different tax charges exist, the capital acquire with the best charge is allowed to be set off first – benefiting the taxpayer.
However right here’s the query: Which LTCG ought to be set off first – fairness or non-equity – when each are taxed on the identical 12.5% charge?
At first look, one could surprise why it issues if the tax charges are the identical. However it does matter – as a result of LTCG from fairness carries the extra advantage of the ₹1.25 lakh exemption, and whether or not or not this exemption will get used relies on when it’s utilized.
Take into account this illustration for an individual having 3 lakhs every capital good points from each fairness and non-equity.
| Technique A | |
| Steadiness in primary exemption restrict | 3,00,000 |
| Capital good points (12.5%) apart from fairness | 3,00,000 |
| Much less stability in primary exemption restrict | -3,00,000 |
| Web good points | – |
| Capital good points (12.5%) from fairness | 3,00,000 |
| Much less exemption u/s 112A | -1,25,000 |
| Much less stability in primary exemption restrict | – |
| Web good points | 1,75,000 |
| Complete Capital good points taxed @12.5% | 1,75,000 |
| Tax @ 12.5% | 21,875 |
| Technique B | |
| Steadiness in primary exemption restrict | 3,00,000 |
| Capital good points (12.5%) from fairness | 3,00,000 |
| Much less stability in primary exemption restrict | -3,00,000 |
| Much less exemption u/s 112A | – |
| Web good points | – |
| Capital good points (12.5%) apart from fairness | 3,00,000 |
| Much less stability in primary exemption restrict | – |
| Web good points | 3,00,000 |
| Complete Capital good points taxed @12.5% | 3,00,000 |
| Tax @ 12.5% | 37,500 |
In Technique B, if the set-off in opposition to the essential exemption restrict is utilized first to capital good points from fairness, there can be no room left to use the exemption below Part 112A, and it might go unutilised. In consequence, the tax payable can be greater.
Sadly, the calculator on the Earnings-Tax portal seems to be following this methodology. We’ll have to attend for the discharge of the official utilities to see how this interpretation is dealt with.
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