Lower LTCG by setting off with business loss

In a recent tax dispute, Mr. Chandra from Delhi utilized his business loss to offset his long term capital gains when filing his income tax return (ITR) for the assessment year 2022-2023. This point of contention led to a lengthy dispute with the Income Tax Department.

Chandra had declared a total income of Rs 17.39 lakh, including a business loss of Rs 10.12 lakh and long term capital gains (LTCG) of Rs 21.29 lakh. The Centralised Processing Centre (CPC) Bengaluru reviewed his ITR and adjusted the sequence of deductions, first against his income from house property (Rs 7,69,087) and then against his income from other services.

Chandra disagreed with this decision, and his chartered accountant, Sumit Goel, appealed the ruling to the Income Tax Appellate Tribunal (ITAT) in Delhi. His legal counsel argued that the Income Tax law permits the set-off of losses from one head of income against income earned from another head within the same financial year.

The ITAT Delhi disagreed with the CPC Bengaluru's decision, stating that while the law allows for the set-off of certain losses against incomes from other heads within the same financial year, it does not specify a particular sequence of adjustment. According to the tribunal, taxpayers can choose the order in which they wish to set off losses against different heads of income, as long as they do not exceed the prescribed limits.

The ITAT Delhi's decision overturned the earlier ruling, giving Chandra the right to select the sequence for setting off his business loss against his income from other heads, such as rental income and other sources. This ruling highlights the flexibility afforded to taxpayers regarding the order of setting off losses, as long as they comply with the Act's restrictions.