Losses Can be a Good Thing!

Those of us who invested in one year FMP's till July 2014 did so in good faith. As per the rules applicable when we invested, the tax on the appreciation of our asset at the end of 365 days, was to have been  10% OR 20% on the indexed value. In simple English,after one year, if you redeemed your money you paid  negligible tax or more often had notional losses.

Last year on 10th July 2014, in his budget speech, the Finance Minister changed the rules on us! Appreciation on any FMP, or, for that matter any debt fund that redeemed after 11th July 2014, which has not completed 3 years, will be deemed as short term gain. Tax on the appreciation will be as per your current tax slab. Which means that if you are in the 30% slab - you end up earning much less than planned!


Fund houses have tried to save the day by rolling over the FMP's for another 2 years to protect those who don't want to pay the extra tax and can afford the lack of liquidity. Some schemes are not rolling over as interest rates are low, among other reasons.

Taxing us retrospectively is really not good practice. However, as we all know, we have no choice in death or taxes. So can we do anything? Perhaps - some of us may have one tool to fight back and save ourselves some taxes.

As per our Income tax rules, we can offset short term gains against long term losses. And long term losses can be carried forward for 8 years. So, for those of us who have been investing in FMP's for many years, we should have losses carried forward in our tax returns. PLEASE check!! If your CA has forgotten to include this one line in your tax returns, please FILE REVISED returns. It will help you save 30% of your gain.

Think about it guys - If your short term gains (due to the changed rules) are 10 lacs and you don't take the trouble to find out, you would end up paying Rs. 3 lacs in tax for no fault of yours. But, if you do have carry forward losses of Rs. 10 lacs, you save Rs. 3 lacs!! One ticket to Machhu Pichhu and back!!!