Can I adjust indexed long-term loss against long-term capital gains on the sale of shares? | Mint

I am a resident individual taxpayer. I purchased a residential house for ₹1 crore a few years back. Now, I have sold the house for 1.25 crore in 2024. What would be my tax liability for the capital gains under the new scheme? The indexed long-term capital computed for the house is a loss, and I have long-term capital gains from the sale of listed equity shares. Can I set off the indexed long-term capital loss on the house against the long-term capital gains on the sale of listed equity shares and pay tax on the balance of long-term capital gains?

The budget presented on 23rd July 2024 has drastically changed the long-term capital gains taxation scheme. The benefit of indexation has been removed for the computation of long-term capital gains except for payment of tax on long-term capital gains arising on the sale of land or building by a resident individual or an HUF.

So, an individual and HUF have the two options for tax payment on long-term capital gains arising from the sale of land or building acquired before 23rd July 2024. So, in such a case, the individual or the HUF can pay to lower the tax payable either at 20% on indexed long-term capital gains or @ 12.50% on unindexed long-term capital gains. Since the indexation results in long-term capital loss, you will not have any liability to pay the tax in respect of thesale of your house.

Tax Implications of Selling Residential Property Under New Capital Gains Rules

As far as the set-off of losses under the head capital gains is concerned, short-term losses can be set off against any capital gains, including long-term capital gains or short-term capital gains. In contrast,long-term capital losses can only be set off against long-term capital gains.

On a plain reading of the provisions, you can infer that one can set off the indexed long-term capital loss on the sale of your house against the long-term capital gains against long-term capital gains from listed shares, but this is not so. The benefit of indexation is available only for the limited purpose of computation of tax liability in respect of long-term capital gains arising from the sale of land or building of an individual or a HUF acquired by a HUF. Still, it is not available for the purpose of computation of long-term capital gains for other purposes like claiming exemption under Section 54 or 54EC or setting off long-term losses from one asset against another asset.

So, though your tax liability in respect of the sale of your house property will be nil, for the long-term capital gains on the sale of listed shares, you will have to pay tax at a flat rate of 12.50% after the initial 1.25 lakh, on which zero rate of tax is to be applied without any adjustment for indexed long-term capital gains on the sale of your house property.

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Balwant Jain is a tax and investment expert and can be reached on jainbalwant@gmail.com and @jainbalwant his X handle.

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