QUESTIONS & ANSWERS
Can the loss on sale of shares be carried forward?
I had suffered a loss of Rs. 1 lakh on transfer of shares which were sold through a stock exchange. I have made profit on sale of unlisted shares to the extent of Rs. 1.20 lakh. I was under the impression that I should be able to set off the loss, but I came across an advice in a web site which reads as under: “Taxable ‘capital loss’ (that is, transaction on which there is a liability to pay tax if the results were ‘gains’ instead of ‘loss’) can be set off only against ‘capital gains’. Exempt capital loss (that is, a transaction which is exempt from tax if the result were ‘gains’ instead of ‘loss’) cannot be set off against taxable capital gains. Taxable long-term capital loss can be set off only against long-term capital gains. However, taxable short-term capital loss can be set off against both short-term and long-term capital gains.” Kindly advise.
Long-term capital gains from sale of shares through a stock exchange on which Securities Transaction Tax (STT) is paid is exempt under Sec. 10(38) of the Income-tax Act. It follows that, if there had been a loss, such loss could not be admissible. The advice given in the web site is, therefore, correct.
If the reader had sold the shares by a private sale, he would have saved STT and the loss would have been available for set off, since Sec. 10(38) would have no application.
It is, no doubt, odd that the assessee who had paid STT is put in a worse position in respect of loss. But such oddity is not rare in our law.
Our fiscal laws do not always follow logic. Equity and tax have also been found to be strangers. If the same transaction is put through one route instead of another there is saving of tax providing scope for tax planning, making the profession of tax advice worthwhile.
S. RAJARATNAM
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