Advance Tax Short and long term capital losses

• Advance Tax

STT, which is Securities Transaction Tax is a duty payable to the government of India on deals done on acknowledged stock exchanges. Such transactions made off the market, when shares are shifted from one DEMAT to another via delivery instruction slips, are exempt from this tax. However, for these types of off-market transactions, capital gains tax is higher than usual as mentioned earlier. The present rate of STT for equity-based trading stands at 0.1% of the deal’s worth.

When it comes to taxes on capital gains, one cannot add STT to the cost of buying and selling shares/stocks/equity. However, all expenses such as brokerage, exchange fees, SEBI charges, stamp duty and service tax paid when trading on the exchange can be included in the share’s cost in order to gain some advantage from what you have spent.

Advance tax when you have realized capital gains (STCG)

Taxpaying individuals with business income or realized short-term capital gains are liable to pay advance tax on the fifteenth of June, September, December, and March. This is a provisional payment based on what you estimate your total income and associated taxes will be for the fiscal year. You must pay 15% of this by June 15th, 45% by September 15th, 75% by December 15th, and the remainder by March 15th. Failure to observe this schedule can result in 12% interest levied for every month of arrears.

When engaging in stock market investments, it is difficult to estimate the capital gains (STCG) you will make over the year solely based on a short-term period. Thus, if you have sold shares and pocketed some profits (STCG), it is wise to pay advance tax for only those earnings. Even though the yearly gain may be less than initially estimated, you can reclaim any excess amount via a tax refund, which the IT department are now quite swift in handling.

You can make your advance tax payments online by clicking on Challan No./ITNS 280 on https://incometaxindiaefiling.gov.in/.

Which ITR form to use

You can declare capital gains either on ITR 2 or ITR3

ITR3 (ITR 4 until 2017): When you have business income and capital gains

ITR 2: When you have a salary and capital gains or just capital gains

– Short and long term capital losses

What if our net losses were greater than the gains in a given year? In that case, we may not be liable to pay any tax on either short-term or long-term capital.

Short term capital losses can be carried forward for 8 years and used to offset gains in those years. 

As an example, let’s consider a situation where you incurred a loss of Rs. 200,000/- in the current year. In the following year, you generated a gain of Rs. 100,000/-. This allows you to offset the loss against the gain, resulting in no taxes needing to be paid on 15% of the gain, equivalent to Rs. 15,000/-, due to the credit from the previous year’s loss.

The remaining amount of Rs. 85,000/- (Rs. 100,000/- – Rs. 15,000/-) can then be carried forward for the next 7 years. This means that you can utilize the remaining loss amount to offset against any future gains during this 7-year period, potentially reducing your tax liability in those years.

Since the introduction of the long-term capital gains (LTCG) tax of 10%, losses can be offset against long-term profits.

Long term capital loss can only be set off against long term capital gains, but short term losses can be used to offset both short and long term profits