Comments
Several foreign portfolio investors (FPIs) have not been able to set off brought-forward capital losses against capital gains for assessment year 2022-23. This has resulted in higher taxable income for these investors, consequently leading to erroneous tax demands, said two people in the know.
The issue persists despite the timely filing of loss returns for the years in which the losses were incurred, as mandated by the Income-tax Act, 1961. The income reported for these years have been assessed and accepted with clean orders passed, according to experts.
Compliance burden
The inability to offset capital losses will increase the compliance burden on FPIs as the investors will need to turn to rectification applications and appeals to tide over the current situation.
“Denial of brought-forward losses in the tax computation sheet appear to be errors or, more like system glitches. These add to the compliance burden on FPIs as they need to pursue remedies like rectification applications, appeals, etc. Similar issues were faced by them in the past as well. Hopefully, these will be addressed by the tax authorities and avoided in the future,” said Suresh Swamy, Partner, Price Waterhouse & Co.
For instance, let’s say an FPI has brought-forward short-term capital losses incurred on sale of listed equity shares for AY19-20 of ₹ 2,00,000 and amounting to ₹2,50,000 for AY20-21. If this is set off against the current year’s short-term capital gains of ₹10,00,000, the reporting taxable income is ₹5,50,000.
However, if the set-off of loss to the extent of ₹2,00,000 for AY19-20 is not granted, the taxable income will increase to ₹7,50,000, resulting in an additional tax demand of ₹2,00,000.
Rajesh Gandhi, Partner at Deloitte India, says that once the loss tax return is filed on time and is not questioned by the authorities in assessment, the benefit of loss carry forward and offset against future income should be automatically allowed without any additional conditions.
“The brought-forward capital losses, which have not lapsed, can be legitimately set off against current year’s capital gains, if appropriately disclosed by the assessee in its return of income. The non-allowance of such losses could be due to technical glitch in the system. The same could be rectified by the tax department upon application made by the assessee,” said Punit Shah, Partner, Dhruva Advisors.
Capital losses
Set off of losses means adjusting the losses against the profit or income of that particular year. Losses not set off in the same year can be carried forward to subsequent years. Capital losses can be carried forward for eight assessment years.
Long-term capital losses can be adjusted only against long-term capital gains. Short-term capital losses can be set off against long-term capital gains and short-term capital gains.
Comments
COMMENT NOW
