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Loss adjustment in itr

20 September 2023

please tell me can Short term and long term adjust from F&O income or not?

kya short term and long term loss adjust ho sakty hai business profit and f&o profit se?
my firm in audit .

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10 Replies

Ashwin Kumar (CA ipcc) (449 Points)
Replied 20 September 2023

Is f&o your main business ?

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ashima khurana (105 Points)
Replied 20 September 2023

no f&o is not main business. my main business is interior work

Ashwin Kumar (CA ipcc) (449 Points)
Replied 20 September 2023

Then f&o falls under the head capital gain. In such case Short term loss cannot be set off against long term gain. vice versa is possible. further stcl agains stcg and ltcl against ltcg is possible.

ashima khurana (105 Points)
Replied 20 September 2023

than what about intra day profit

Ashwin Kumar (CA ipcc) (449 Points)
Replied 20 September 2023

It's short term

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Eswar Reddy S (CFO- at NHTF) (58270 Points)
Replied 22 September 2023

F & O is considered as normal business income.

Hence there is no question of long term and short term

Krishnamurthy B. (VP - S/w Architecture) (53 Points)
Replied 23 September 2023

Rules for Inter-Head Loss Adj is provided in Section 71 of the Income Tax Act. As per that, you are allowed to setoff Business Loss against Capital Gain, but not Capital Loss against Business Profit (or any other Income).

So, first answer to your question is "No, STCL & LTCL cannot be setoff / adjusted against Business Profit".
Next, all gains / losses from Intra Day trades must be declared under head "Speculative Income". So, profits from Intra Day trades cannot be used to setoff STCL & LTCL. As far as I know, Intra-day trades are shown separately in AIS now. So, including them under Capital Gain trades may raise a red flag inviting scrutiny.

Lastly, F&O trading is almost always considered to be "Business Income" by IT Dept. Even if your primary business is something else, F&O is expected to be declared as a 2nd business of type "13010-Investment Activities". Profits or losses from F&O will then get added to those of your primary Business to arrive at your net income under head "Income from Business or Profession" (sched BP).

However, if you have just a few F&O transactions and particularly if they are of a "hedging" nature vis-a-vis your stock investments, you may be able to get away with including those F&O transactions along with your stock trades under the Capital Gains head; and F&O being short-term in nature in India, they will get added to your STCG (and thus you get an intra-head setoff for your other STCL / LTCL within the Cap Gains head).

But this is a dicey approach if you have a fair number of F&O trades, or they're clearly not of hedging nature. If there's a large difference between Cap Gains transactions shown in your AIS and what's declared in your ITR, your ITR has a higher chance of getting picked up for scrutiny. Then, the Income Tax dept may force you to report F&O trades under Business Income, and also impose a penalty for under payment of tax by taking the disallowed Loss Setoffs earlier. Besides, if you ITR needs to be audited under any section, even your Auditor could object to clubbing F&O under Cap Gains, (but many may not - depends on the Auditor).

So, the correct advice is to not try the above underhand trick in most cases... The correct way is to just carry forward the STCL / LTCL for setoff against next year's STCG / LTCG... (or further forward for next 7 years).

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sabyasachi mukherjee (27574 Points)
Replied 23 September 2023

Loss adjustment can be easily made in itr

ashima khurana (105 Points)
Replied 23 September 2023

thank u so much sir. it's very helpful

Krishnamurthy B. (VP - S/w Architecture) (53 Points)
Replied 23 September 2023

As a matter of clarification on "Intra-head setoffs" allowed within the Capital Gains head, the relevant rules are in section 74 of the IT Act. This says that Short Term Capital Loss CAN be setoff against gains on any other type of Asset, while Long Term Capital Loss CANNOT be setoff against gains on Short Term assets.

So, in Ashwin's answer above, I guess he meant to type "can" instead of "cannot" in the sentence "In such case Short term loss cannot be set off against long term gain. vice versa is possible."

The rule makes sense if LTCG Tax % is lower than STCG Tax %, but nowadays Tax on STCG on Stocks with STT pmt is 15%. So, revenue does not suffer by letting us setoff LTCG 20% against STCG (15%); so doesn't make sense to stop us from doing that... Got to see what the ITR Utility of Tax Dept is doing when it auto-setsoff Capital Losses in Sched CG...

In such case Short term loss cannot be set off against long term gain. vice versa is possible.

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