InvestorQ : Is it possible scenario that I make profit on sale of assets but still declare loss for the Income Tax purpose?
Dhwani Mehta made post

Is it possible scenario that I make profit on sale of assets but still declare loss for the Income Tax purpose?

Answer
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Anjana Aiyar answered.
1 year ago


You will be positively surprised, but the answer is yes! Let us understand with the illustration below:

Sanjay bought gold worth Rs.50,000 in May 2013 and sold it at Rs.60,000 in May 2018 resulting in long term capital gain (held for more than 3 years) of Rs.10,000. How will this gain be treated? Will it be taxable gain and how much tax will I have to pay?

Gold trade details

Amount

Capital Gains

Amount

Fiscal Year bought

FY 2013-14

Value of Sale (A)

Rs.60,000

Fiscal Year sold

FY 2018-19

Cost of Purchase

Rs.50,000

Index Value of Buy year

220

Indexed Cost of Buy (B)

Rs.63,636

Index Value of Sale year

280

Indexed Gain/loss (A-B)

Rs.(-3,636)

Now this sounds ironic right? You actually made a profit of Rs.10,000 but you are showing a loss of Rs.(-3636). But can this loss be set off or carried forward. Yes of course. This is like any other capital loss and can be written off in the same year against other long term gains or the same can be carried forward for a period of 8 years and set off against future profits. The choice is entirely yours.

In the above case, Sanjay has actually made an absolute gain of Rs.10,000 on the sale of gold after 5 years. However, when the indexation benefit is considered and the cost of acquisitions is indexed, then Sanjay ends up with Long term Capital Loss on the transaction (LTCL) of Rs.(-3,636). This loss can either be set off against the current year long term gains or it can be carried forward to future years for 8 successive years. This is an important point for you to remember especially when you are looking at loss farming.