Capital Loss

Tax

Quick Definition

A Capital Loss occurs when you sell a capital asset for a price lower than its purchase cost, resulting in a financial loss.

Detailed Explanation

Capital Loss arises when the selling price of an asset is less than its cost of acquisition. It is the opposite of a capital gain.

Under the Income Tax Act 1961, capital losses can be used to offset capital gains, helping reduce overall tax liability.

Types of Capital Loss (India)

Short-Term Capital Loss (STCL)

  • Occurs when asset is sold within short holding period
  • Can be set off against both STCG and LTCG

Long-Term Capital Loss (LTCL)

  • Occurs when asset is held for long term
  • Can be set off only against LTCG

Why Capital Loss Matters

  • Reduces taxable capital gains
  • Useful for tax planning (tax loss harvesting)
  • Reflects investment performance

Set-Off & Carry Forward Rules

  • Losses can be carried forward for up to 8 years
  • Must file income tax return to claim benefit

Capital Loss vs Capital Gain

  • Capital Loss: Selling at a loss
  • Capital Gain: Selling at a profit

Example

"You buy shares for ₹1 lakh and sell them for ₹80,000: 👉 Capital Loss = ₹20,000"

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