Capital Loss refers to the loss incurred when a capital asset—such as property, shares, or mutual funds—is sold for a price lower than its original purchase cost. In the Indian tax system, capital assets are classified as either short-term or long-term, and accordingly, capital losses are categorized into Short-Term Capital Loss (STCL) and Long-Term Capital Loss (LTCL).
Capital losses can be used to reduce your taxable income, but only under certain conditions. For instance, a short-term capital loss can be set off against both short-term and long-term capital gains. In contrast, a long-term capital loss can be set off only against long-term capital gains. If the loss amount cannot be fully adjusted in the same financial year, it can be carried forward for up to 8 years, provided the Income Tax Return is filed within the due date.
Understanding capital loss is crucial for individuals and businesses involved in frequent asset transactions or investments. Properly recording and declaring these losses can help in reducing tax liability and optimizing financial planning.
For small business owners, startups, and investors, tracking capital losses can improve tax efficiency during the filing process. Whether you're dealing with real estate sales, equity investments, or digital assets, capital loss treatment can significantly affect your annual tax calculation.
To know more about how capital gains and losses affect your income tax filing and planning, visit FinTax24’s Income Tax Solutions.