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CMA Intermediate · Direct and Indirect Taxation · Set off and Carry Forward of Losses

Sunrise Traders Ltd, a company, carried forward a long-term capital loss of Rs 2,00,000 from an earlier tax year. In the current tax year it has a short-term capital gain of Rs 3,00,000 and a long-term capital gain of Rs 50,000. What is the maximum brought forward loss that can be set off this year, and against which gain?

Only Rs 50,000 can be set off, against the long-term gain. A carried forward long-term capital loss is adjustable only against long-term capital gains under section 111. The remaining Rs 1,50,000 is carried forward to the next tax year.

  1. ARs 2,00,000 against the short-term gain
  2. BRs 50,000 against the long-term gainCorrect
  3. CRs 2,00,000 against both gains in any proportion
  4. DRs 3,50,000 against total gains

Explanation

Under section 111(1)(a)(ii), a carried forward long-term capital loss can be set off only against long-term capital gains. The only long-term gain is Rs 50,000, so Rs 50,000 is set off. The balance of Rs 1,50,000 is carried forward further, subject to the eight-year limit. The short-term gain cannot absorb it.

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