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Can short term gains be set off against Long term capital losses?

Monday, November 08, 2010
By Anand Tibrewala


Q-1) I have made short term capital gains on the Coal India Ltd. IPO. Can I set off this profit against loss from my other investments held for more than one year?
-A.R.Singh, Bandra  
Ans: No you can not set off the loss on the shares held for more than one year against your short term capital gains. The Long term capital gains are tax free under the current provisions of Income Tax Act, 1961. Hence, Long Term capital gains need to be ignored. Due to this reason, the short term capital gains can not be set off against long term capital loss.
Q-2) I have received a painting from my father, which he had acquired many years back. One of my friends happened to visit my house and he saw the painting. He informed me, that it is from a reputed painter and that I can fetch a good value by selling it. Can you advice me whether any tax implications are attracted if I sell the painting?
-Sagar Salvi, Peddar Road 
Ans : The painting or any art work has been included in the definition of ‘Capital Asset’. If an item is included in the definition of capital asset, then any profit arising on transfer of the capital asset is taxable. As described by you, it is held by you for many years; it would be treated as a long term capital gain. The cost of the painting if available would be deductible along with indexation of the cost. The balance amount would be taxable as long term capital gain.
Q-3) I am a consulting engineer. My gross billings are exceeding Rs.10 lakhss in one financial year. Thus I am registered under the service tax Act under this particular service. I issue bills to my clients along with the service tax amount. However, in most cases the client does not pay service tax and settle with me on the net amount basis. Thus I have to pay service tax from my earnings. Can I claim the service tax amount as a deductible expense against my income?
-Anju Parab, Borivali 
Ans : Service tax, though a tax is a deductible item as an expense. Hence, in case your clients do not pay service tax separately and you pay it from your income, then the same is deductible out of your taxable income. This payment falls under general deduction under section 37. 
(The Author is a CA and specializes in taxation matters. He is a Senior Partner at the leading Chartered Accountancy firm, AD & Company)
If you have any Tax Query email it to us at "> and we will find you a solution.



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