Section 74 of ITA, 1961 : Section 74: Losses Under The Head Capital Gains

Explanation using Example

Imagine Mr. Sharma sold shares of a company that he had held for 3 years at a loss of INR 100,000 in the financial year 2022-2023. This is considered a long-term capital loss. In the same year, he also sold some other shares that he had held for just 10 months at a profit of INR 50,000, which is a short-term capital gain.

According to Section 74 of the Income-tax Act, 1961, Mr. Sharma can set off his long-term capital loss against any long-term capital gains made in the financial year 2022-2023. However, since he only has short-term capital gains, he cannot set off this loss against those gains.

Mr. Sharma can carry forward the remaining loss of INR 100,000 to the next financial year, 2023-2024. If he makes any long-term capital gains in that year, he can use the carried-forward loss to reduce his tax liability. If he doesn't have enough long-term capital gains in 2023-2024 to set off the entire loss, he can carry forward the unadjusted loss to subsequent years, but not beyond eight assessment years from 2022-2023.