Capital Gains Chapter- 12
No loss shall be recognized on disposal of the assets mentioned below: [U/s 38(5)]
(i) A painting, sculpture, drawing or other work of art;
(ii) Jewellery;
(iii) A rare manuscript, folio or book;
(iv) A postage stamp or first day cover;
(v) A coin;
(vi) A Medallion; and
(vii) An antique.
Example: From following information compute taxable income and tax liability of Mr. A.
Rs.
Gain on sale of painting 40,000
Loss on sale of jewellery 20,000
Loss on sale of shares of a (Pvt.) Limited company in EPZ 10,000
Solution:Capital gain chargeable to tax is Rs. 40,000.
Loss on sale of Jewellery is not recognised.Loss on sale of shares of a (Pvt.) Limited company in Export Processing Zone (EPZ) shall be
recognized as gain on such shares is also taxable due to omission of clause (114) of Part I of 2nd
Schedule. The said loss may be adjusted against the gain on sale of painting and the resultant
amount of capital gain is less than the maximum non taxable limit under NTR.- Loss U/S 37A:
Capital loss u/s 37A shall be set off against the gain from any other security chargeable to tax during
the year; It shall not be carried forward as it is treated as a separate block of income. [U/s 37A(5)]Provided that so much of the loss sustained on disposal of securities in tax year 20l9 and onwards
that has not been set off against the gain of the person from disposal of securities chargeable to tax
under this section shall be carried forward to the following tax year and set off only against the gain of
the person from disposal of securities chargeable to tax under this section, but no such loss shall be
carried forward to more than three tax years immediately succeeding the tax year for which the loss
was first computed.Capital loss adjustment disallowed (Rule 13F)
Capital loss adjustment as mentioned above shall not be admissible in the following cases, namelyWash Sale
Where capital loss realized on disposal of a specific security by an investor is preceded or followed in
one month’s period by purchase of the same security by the same investor, thus maintaining his
portfolio.
Cross TradeWhere coordinated reshuffle of securities between two related accounts of the same investor or
between two related brokerage houses is undertaken and securities accumulating unrealized losses
are sold to related accounts to artificially realize capital losses in one account without actually selling
the securities to an outsider.Tax Swap sale
Where the investor having realized loss on a particular security does not repurchase the same
security but chooses another similar security in the same sector, thus, not only minimizing or
eliminating altogether liability on account of tax on capital gain, but also maintaining the portfolio
broadly at the same risk return profile.