How can an NRI carry forward capital losses?

I am a non-resident Indian (NRI) residing in Abu Dhabi for many years. I sold my residential property in India at a loss during 2021-22 and filed my income tax return (ITR) well within the due date. However, I have not filed my ITR for 2022-23 since I barely had any taxable income. Now, for 2023-24, I have earned some capital gain income from the sale of shares but I missed filing my return in July 2024. Can I still set off the losses made in 2021-22 against my current year's capital gains income?

-Name withheld on request

Section 80 of the Income Tax Act, 1961 (‘ITA’) mandates that taxpayers should file their income tax returns within the prescribed due date specified in section 139(1) to carry forward losses. In your situation, you have successfully filed your loss return for 2021-22 within the specified due date, which marks an important first step in establishing your claim for the loss.

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Thereafter, you have not filed your income tax return for 2022-23 because, as you mentioned, your income had not exceeded the basic exemption limit corresponding to that year. And during 2023-24, you state that you have realized certain capital gains that you can set off against the losses from 2021-22.

It is important to note that while section 139(3) requires the timely filing of the return for the initial year in which loss corresponds (viz. 2021-22 in your case), there is no other provision under ITA that requires you to continue to file subsequent years’ tax returns to remain continually eligible to carry forward previous year losses to the subsequent years. Consequently, the absence of a tax return for 2022-23 does not disqualify you from carrying forward the losses to 2023-24.

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Further, coming to 2023-24, you are well within the eight-year time limit to claim the set-off for your brought forward loss. Again, the set-off of the brought forward loss is not prejudiced by the fact that you have not yet filed your tax return for 2023-24 by the due date. You can still submit your belated tax return by 31 December 2024 to make the desired claim.

Please bear in mind that long-term capital losses can be set off only against long-term capital gains. Hence, you will be eligible for set-off during 2023-24 only if the capital gains income from the sale of shares is long-term gains in nature. Otherwise, you may still carry forward the losses you brought forward from previous years.

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Harshal Bhuta is partner at P.R.Bhuta & Co.