The carrying forward of the capital losses is an asset tax advantage for Non-Resident Indians(NRIs) which helps them carry such losses against the future profits. The Income-tax Act, 1961, has provisions wherein carrying forward losses due to the sale of any capital assets, like shares/mutual funds or the sale of property, under defined conditions, can be performed by NRIs.
NRIs need to ensure that all losses have been filed within the due date specified in the provisions. The ones not reported on time cannot be carried forward. However, short-term capital loss is the one from holding assets for less than 36 months. Such loss can be set off in future years against both the short-term and long-term capital gains. Long-term capital losses can, however, only be claimed against long-term gains on assets held for more than 36 months.
These carry forward losses are permissible to be set off against eight consecutive years from the assessment year in which the loss is incurred. For example, an NRI whose loss has arisen in assessment year 2023-2024 can carry it forward to the extent available for setting off with any gain during the next eight consecutive assessment years, that is to say, up to and inclusive of the assessment year 2031-2032. This can severely reduce the taxable capital gain of an NRI subsequently reducing his tax liability also.
This is a benefit that NRIs should take full advantage of by ensuring that they adhere to the tax filing procedures in India, even if they are staying abroad. This involves securing a Tax Identification Number and filing annual returns, no matter whether any income was generated during the year or not. Proper record-keeping of all capital transactions should be maintained to support claims in case needed.
In some cases, a tax advisor may be consulted to deal with complexities regarding capital gains taxation from different jurisdictions. Most countries have taxation treaties with India, and this can help the NRIs benefit from double taxation avoidance agreements, thus reducing their tax burdens even further.
Proper application of carry forward rules will enable NRIs to strategically reduce their tax exposure in future years. It can be helpful to those investing in volatile markets or frequently trading in equities or mutual funds where the potential for gains and losses varies significantly.
