Stock market loss in spouse’s demat account: Who can claim the tax benefit?

Fresh updates from the financial markets indicate that A taxpayer incurred a Rs 1.95 crore equity market loss while trading through his wife’s demat account using an interest-free loan he provided. Today’s Ask Wallet Wise explains whether the loss can be set off against his personal short-term capital upside.

The Ask Wallet Wise initiative offers expert advice on personal finance and money-related queries. You can email your queries to askwalletwise@nw18.com, and we will try to get a top financial expert to address them.

I have a massive equity market loss of Rs 1.95 crore from trading in my wife's demat account using my interest-free loan. Can I offset this loss against my personal short-term capital upside this year?

Expert's Advice: Under income tax laws, a taxpayer can set off a loss from one source against another source of income under the same head, subject to certain restrictions. Speculative losses cannot be set off against any other income from profession or income, both of which are taxed under the head “Earnings and Upside of Business or Profession”. Likewise, long-term capital loss cannot be set off against short-term capital upside, both of which are taxed under the head “Capital Upside.”

Likewise, an assessee can set off loss under one head of income against income under other heads subject to certain restrictions. Loss under the head “Earnings and Upside of Business or Profession” cannot be set off against income taxable under the head “Salaries”. Losses under the capital upside head cannot be set off against income from other sources. Loss under the Head Income from house property can be set off up to Rs 2 lakh against income under other heads only under the old tax regime. The loss under house property can not be set off against other heads if the taxpayer opts for the new tax regime.

Loss incurred by one person cannot be set off against the income of any other person unless the income is subject to clubbing provisions. Clubbing provisions get attracted in respect of income arising from assets gifted by a person to his/her spouse. The clubbing provisions will apply for positive income as well as negative income arising from the asset so gifted.

As you have given an interest-free loan and not made a gift of the money, the clubbing provisions will not apply, and you will not be able to set off the loss made by your wife in her share trading transaction done with the help of an interest-free loan given by you against your income.