Do you bear 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 beneficial properties from fairness beneath Part 112A, the loss is first set off in opposition to the beneficial properties, and solely then is the exemption of ₹1 lakh (₹1.25 lakhs from FY 2024–25 onwards) utilized.
That is truly tough, as generally the exemption goes unutilised, or in different instances, the carry-forwarded losses diminish yearly by being set off in opposition to beneficial properties – even when the beneficial properties are under the edge of exemption.
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This 12 months onwards, there’s one other attention-grabbing interpretation. For the reason that tax fee on long-term capital beneficial properties (LTCG) apart from fairness has been decreased from 20% to 12.5%, we now have two classes of LTCG taxed on the identical fee of 12.5%: fairness and non-equity. Nonetheless, solely capital beneficial properties from fairness benefit from the exemption of ₹1.25 lakhs beneath Part 112A.
If a taxpayer has no different revenue besides LTCG, he would have an unutilised portion of his primary exemption restrict (based mostly on slab charges), which can be utilized to cut back his capital beneficial properties tax legal responsibility. Often, when a number of capital beneficial properties beneath completely different tax charges exist, the capital achieve with the best fee is allowed to be set off first – benefiting the taxpayer.
However right here’s the query: Which LTCG needs to be set off first – fairness or non-equity – when each are taxed on the identical 12.5% fee?
At first look, one could marvel why it issues if the tax charges are the identical. Nevertheless 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 depends upon when it’s utilized.
Think about this illustration for an individual having 3 lakhs every capital beneficial properties from each fairness and non-equity.
| Methodology A | |
| Stability in primary exemption restrict | 3,00,000 |
| Capital beneficial properties (12.5%) apart from fairness | 3,00,000 |
| Much less steadiness in primary exemption restrict | -3,00,000 |
| Web beneficial properties | – |
| Capital beneficial properties (12.5%) from fairness | 3,00,000 |
| Much less exemption u/s 112A | -1,25,000 |
| Much less steadiness in primary exemption restrict | – |
| Web beneficial properties | 1,75,000 |
| Whole Capital beneficial properties taxed @12.5% | 1,75,000 |
| Tax @ 12.5% | 21,875 |
| Methodology B | |
| Stability in primary exemption restrict | 3,00,000 |
| Capital beneficial properties (12.5%) from fairness | 3,00,000 |
| Much less steadiness in primary exemption restrict | -3,00,000 |
| Much less exemption u/s 112A | – |
| Web beneficial properties | – |
| Capital beneficial properties (12.5%) apart from fairness | 3,00,000 |
| Much less steadiness in primary exemption restrict | – |
| Web beneficial properties | 3,00,000 |
| Whole Capital beneficial properties taxed @12.5% | 3,00,000 |
| Tax @ 12.5% | 37,500 |
In Methodology B, if the set-off in opposition to the essential exemption restrict is utilized first to capital beneficial properties from fairness, there could be no room left to use the exemption beneath Part 112A, and it might go unutilised. Consequently, the tax payable could be greater.
Sadly, the calculator on the Revenue-Tax portal seems to be following this technique. We’ll have to attend for the discharge of the official utilities to see how this interpretation is dealt with.
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