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  • Tax Matters: Can short-term equity gain be set off against short-term loss?

    Short-term gains on shares can be adjusted with brought-forward loss on equities if the loss in not a dead loss

    Can short-term capital gains from selling stocks be set off against current or carried forward long-term losses from equities? Can short-term capital gains from equity be set off against carried forward short-term losses from equities?

    — R A Banga, Jalandar

    As per the provisions of the Income Tax (IT) Act, 1961, long- term capital loss can be set off only against long-term gain and short-term capital loss can be set off against short-term capital gain as well as long-term capital gain.

    If a person cannot set off loss under the head, Capital gain, within the same year, then such loss is carried forward and can be set off in subsequent years against income from the head, ‘Capital gain' only.

    In the subsequent year, brought-forward long-term loss can be set off only against long-term gains, if any. Brought-forward short-term loss can be set off against short-term gains or long- term capital gains.

    Exception is dead loss, i.e., loss not available to set off at all. There is no tax on long-term gains on shares and equity funds subjected to securities transaction tax (STT) as exemption is available under Section 10(38) of the IT Act. So, long-term capital loss on shares and equity funds subjected to STT is a dead loss. Therefore, it cannot be set off or carried forward to the following assessment years.

    Thus, short-term gains on shares can be adjusted with the current or brought-forward loss on equities provided such loss is not a dead loss. Short-term gains from equities can be adjusted against brought- forward short-term loss from equities.


    I am planning to buy a small commercial property by taking loan from bank or financial institution. Is any income tax (IT) exemption under Section 24 or any other section of the IT Act, 1961, available for the loan? Rental income will be shown as income from property.

    · — K N Srinivas, e-mail

    Income from house property in general is taxable under the head, ‘Income from house property', in the hands of the owner. The rule applies to both residential as well as commercial property.

    As per the provision of Section 24(b) of the IT Act, a person can claim deduction on interest on loan borrowed for acquisition, construction, renovation, repairing or reconstruction of the property, whether residential or commercial. The interest on borrowed capital is allowed as deduction on accrual basis even if the books of accounts are kept on cash basis. As the deduction is available on accrual basis, it should be claimed as deduction every year even if the interest is not actually paid during the year. Even processing fee or prepayment fee for any loan taken to buy commercial property is treated as interest and is eligible for deduction. The person cannot claim deduction of unpaid interest nor on any brokerage or commission paid for acquiring the loan.

    As the income is derived from house property, you can claim deduction, under Section 24(b) of the IT Act, of interest on loan borrowed while computing income of such property. Till fiscal year (FY) 2016-17, you should claim full interest on money borrowed for purchase of commercial property without any limit. From FY 2017-18, loss under the head income from house property can not exceed Rs 2 lakh. You are not allowed any deduction on repayment of loan taken for commercial property under Section 80C of the IT Act. In 2016, the Rajkot IT Tribunal held that rent from commercial property is taxable as business income and not from house property.


    I am in Mumbai. I have warehouses in Gujarat. My neighbour helps me in minor administrative work without any charges on friendship basis. Cheques and bills are prepared in Mumbai and dispatched to him who, in turn, distributes them. In such a situation, does he become my agent? Will I have to take registration in Gujarat? I am charging integrated goods and services tax (IGST) in the bills raised on my tenants of warehouses.

    — Rajesh, e-mail

    In the GST regime, renting of immovable property is a supply of service on which the GST rate is 18%. Exemption has been given to renting of residential dwelling for use as residence.

    In the pre-GST regime, service tax was a Central tax. There was no state tax on services. But in the GST regime, supply services are bifurcated into inter-state supply and intra-state supply. The place of supply and location of the supplier has to be mentioned to determine whether supply is inter-state or intra-state. If the place of supply and the location of the supplier are in two different states, then it is an inter-state supply. If these two fall in the same state, then it is an intra- state (local) supply.

    As per Section 12(3) of the IGST Act, 2017, if the place of supply of service is an immovable property, then the location of the service is the immovable property. In your case, the place of supply is Gujarat, where the warehouses are located)

    Section 2(15) of the IGST Act contains four clauses (a), (b), (c), (d) to determine the location of the supplier of the service.

    Clause (a) says that location of a supplier means a place of business from where the supply is made and for which registration has been obtained. Place of business is defined as a place from where business is ordinarily carried, where a warehouse or any other place for storage of goods is located, the books of accounts are maintained and/or the business through agent is carried on.

    Clause (b) states that when a supply is made from a place other than the place of business for which registration has been obtained (a fixed establishment), the location of such fixed establishment is the location of the supplier.

    Clause (c) relates to supply of service from more than one establishment and is, thus, not applicable.

    Clause (d) says that in absence of clause (a),(b),(c) being applicable, the location of the supplier of service is the location of the usual place of residence.

    In your case, the place of supply of service is in Gujarat. However, you (supplier) are in Maharashtra. As the place of supply and the place of supplier are in different states, it is an inter-state supply and subject to IGST.

    A little help from your friend does not make him an agent, requiring you to take registration in Gujarat. However, as the GST law is still evolving, the position might be disputed. Safer to write to the jurisdictional office for clarification or go in for advance ruling under GST.


    I am a chairman of co-operative housing society. There is confusion among the office bearers of the society about nomination and nominee. Can you explain?

    — Subhash, email

    A nominee is merely a custodian or trustee and not the owner of the property. A nominee is only a registered owner of a property and not a beneficial owner of a property. 

    The Maharashtra Co-operative Societies Act, 1960, permits a member to nominate person(s) to whom the member's share and interest in the co-operative society will be transferred by the society in the event of the member's death.

    A member ceases to be a member of a society on death. However, his holding and other interests do not lapse. They pass on to his heirs or legal representatives and the society is obliged to transfer the shares or interest to them.

    Section 30 of the Act provides that the society has to transfer the share or interest of the deceased member to person(s) nominated in accordance with the Maharashtra Cooperative Societies Rules, 1961. If no such person is nominated, then the committee of the society has to transfer it to such a person as might appear to the committee to be the heir or legal representative of the deceased member, provided he is duly admitted as a member of the society.

    Therefore, on the death of a member, the society should transfer the share or interest of the deceased member to a person nominated in accordance with the rules. Nomination makes clear the person with whom the society has to deal on the death of a member. It does not create any interest in favour of the nominee to the exclusion of those who are in law entitled to the estate of a deceased member. Nomination does not override laws of succession. The nominee does not become the absolute owner of the property.  He is only empowered to hold the property in trust for the real owners for the purpose of dealings with the society. A nominee has no power, authority or title to alienate the property to the exclusion of the other legal heirs of the deceased member.

    The society is not concerned with disputes among the heirs of the deceased. Section 30 of the Act allows the society to transfer the shares of the member to a nominee and the transfer will be valid against any demand made by any other person on the society.

    To nominate a person, the member of a society has to either make and sign a document or make a statement in the book kept for that purpose by the society. When the nomination is made by a document, such a document has to be deposited with the society during the member's life-time. When the nomination is made by a statement, such a statement has to be signed by the member and attested by one witness (Rule 25 of the Rules). 

    Te nominee(s) should submit an application for membership within six months of the death of the member. If there is more than one nominee, such nominees should make a joint application to the society and indicate the name of the nominee who should be enrolled as a member. The other nominees should be enrolled by the society as associate members.

    If only one nominee is indicated by the nominees for membership of the society, the nominees should also file an indemnity bond in the prescribed form, indemnifying the society against any claims made to the shares and interest of the deceased member in the capital or property of the society by any of them upon transfer of shares and interest of the deceased member in the capital/property of the society to the nominee.

    On death of a member, the managing committee of the society has to verify the nomination form duly submitted by the deceased member and the will of the deceased member duly probated by the appropriate court through the executor of the will or the letters of administration or the succession certificate obtained from the civil court under the Indian Succession Act, 1925.

    The society has to act on the nomination immediately on death of the member and transfer the share or interest to the nominee, without waiting to find out who the actual owner of the share or interest is, so that there is no hindrance in the functioning of the society.

    When a nomination is made in accordance with law, the society cannot make any inquiry or invite any objection. The share or interest of the deceased member must be transferred in the name of such nominee(s). 

    The process of nomination is necessary to ensure that the assets of the deceased are protected and the deceased is represented appropriately before various organisations such as banks, insurance companies, societies or other authorities. 

    The replies are only in the nature of guidelines. The tax counsellors and the publication are not responsible for any decision taken by readers on the basis of the same.
    Readers may e-mail their queries on direct taxation to: tax-matters@capitalmarket.com

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Flash News 26-Sep-2018
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