ITR filing: Can I set off stock market losses against my salary?

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Can I set off the losses incurred by me on stock market transactions against my salary while filing income tax returns? 

The income from stock markets transactions can either be taxed under the head “Capital gains” or “Profits and gains of business and profession” depending on whether the transactions are of investment in nature or are carried out as business activity. 

Whether the same would be taxed as business income or capital gains would depend on various factors like average holding period of the investments, source of money invested, the volume of the transactions, the intention behind making the investments etc. It can only be decided on the basis of the facts of each case. Intraday transactions (where the transactions are squared up without actual delivery) in shares are treated as a speculative transaction and any loss if incurred on intraday transactions can only be adjusted against any other speculative transaction whether on commodity or on shares.

This cannot even be adjusted against profits from your regular business activities. Any loss other than intraday transaction in shares can be set off against income from any other head except against your salary income in case such transactions are treated as business and not as an investment. If the transactions are treated as investments any loss from such transaction can only be set off against capital gains and cannot be set off against any other head. 

So any loss incurred by you from your share transaction under both the head “Capital gains” and “Profits and Gains of business or Profession” cannot be set off against your salary income during the current year. However, any loss under both the heads which cannot be set off during the year are allowed to be carried forward for set off against the income under the same head for the prescribed period. 

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

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