Silver Lining to Losses

We all work hard for our money. We even save. We invest wisely. We pay taxes. We all know that 'loss" is not a good thing. Did you know it could be? If that's made your prick your ears up, read on.....


Indexation-Big word. Dont let it daunt you. Its a good word. Really. It can help you save taxes. Very simply, the Government recognises that the 'real' value of money declines every year, due to inflation. And so, they give us, the honest taxpayer, latitude. Its called indexation. Take advantage. Please. All you need to do is conquer the word. Else the tax guy has succeeded in scaring you away.

Lets assume you own a property. In the next 6 years, you sell it. Of course, you are allowed to index the value of the property itself. Thats a given. That part of the indexation your CA will do for you.  But what if you have other investments over these 6 years, where you have made losses? Well, convert these losses into profits. Lets look at an example.

Case 1
No carry forward losses (Either you dont have any, or you forget to include it in your tax returns)
Rs 70 lacs x 22.4% = Rs. 15.68 lacs in tax

Case 2
Rs. 70 lacs profit
- Rs. 30 lacs carry forward losses
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Taxable Amount= Rs 40 lacs
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Rs. 40 lacs x 22.4% = Rs. 8.96 lacs
Tax Saved Rs. 6.72 lacs

Some of the assets that  you can use indexation for are gold, property, Fixed Maturity Plans (FMP's) and Debt funds. From your end, all you have to do is clearly tell your CA at the time of filing your tax returns, what you have sold and when and also when you bought it. Also define the asset clearly. Especially if it is an FMP or a debt fund. CA's are under intense pressure when filing returns, so if you dont tell, they wont ask! And then, there go your tax savings!