Losses under the head “Capital Gains‟ [Section 74 ] :

Section 74 provides that where for any assessment year, the net result under the head “Capital gains‟ is short term capital loss or long term capital loss, the loss shall be carried forward to the following assessment year to be set off in the following manner:

(i) Where the loss so carried forward is a short term capital loss, it shall be set off against any capital gains, short term or long term, arising in that year.

(ii) Where the loss so carried forward is a long term capital loss, it shall be set off only against long term capital gain arising in that year.

(iii) Net loss under the head capital gains cannot be set off against income under any other head.

(iv) Any unabsorbed loss shall be carried forward to the following assessment year up to a maximum of 8 assessment years immediately succeeding the assessment year for which the loss was first computed.

Illustration
During the P.Y. 2015-16, Mr. C has the following income and the brought forward losses:

Particulars	Rs
Short term capital gains on sale of shares	1,50,000
Long term capital loss of A.Y.2014-15	(96,000)
Short term capital loss of A.Y.2015-16	(37,000)
Long term capital gain	75,000

What is the capital gain taxable in the hands of Mr. C for the A.Y.2016-17?

Solution
The capital gains taxable are as under:

Particulars	Rs	Rs
Short term capital gains on sale of shares	1,50,000
Less: Brought forward short term capital loss of the A.Y.2015-16	(37,000)	1,13,000
Long term capital gain	75,000
Less: Brought forward long term capital loss of A.Y.2014-15 [See Note below]	(75,000)	Nil
Taxable short-term capital gains		1,13,000

Note: Long-term capital loss cannot be set off against short-term capital gain. Hence, the unadjusted long term capital loss of A.Y.2014-15 of Rs 21,000 (i.e. Rs 96,000 – Rs 75,000) has to be carried forward to the next year to be set-off against long-term capital gains of that year.