You can reduce income tax in many ways. Under this rule, there is also a way to adjust the losses with the profits. You can reduce your tax liability by setting up losses incurred in a business or investment. Let’s understand how…
Income Tax Saving: The tax law of the country gives many such avenues or facilities to the income tax payers by which you can reduce your tax liability. One of these is to reduce your tax liability by setting the loss in business or investment. Under the Income Tax Act, the income earned by the taxpayers has been kept under five major categories. In which salary, house property, capital gains, business or professional and other other sources are prominent.
To understand how to reduce your tax liability by adjusting losses, here we understand two mechanisms of loss adjustment. One is intra head and the other is inter head. Taxpayers can be adjusted against the loss from one source of income within a particular head to the loss from other sources of income falling within the same head. For example, you can adjust the loss from business X with the profit from business Y.
How the loss is adjusted
On the other hand, in inter head adjustment, the taxpayer can adjust the loss from one head of income source with the income within the other head. For example, suppose you can adjust the house property head with the salary income. Tax experts say that taxpayers should do intrahead adjustments before interhead adjustments.
Capital loss
Capital loss cannot be adjusted against the income coming under any other head. Meaning you can adjust capital loss only with capital gains. Also, you can adjust the long term capital loss with the long term capital gains. At the same time, you can adjust short term capital loss with both long term and short term capital gains.
House Property
The law of loss due to house property is more lenient in terms of adjustment. It can be adjusted against income from any other head, but only to the extent of ₹ 2 lakh in a particular year. Even if the income tax return is not filed by the deadline, the taxpayer can adjust it for the next eight years. However, in subsequent years, it can be adjusted only from the income from house property. These rules will also apply to commercial properties.
