Question

1. Distinguish between a Capital and an Ordinary loss.

2. Describe a Wash Sale.

Answer 1

Capital Loss: Capital loss is arises due to sale of capital assets. When Capital assets sold at a price less than its cost. Capital aaset means a property movable or immovable, tangible intangible, fixed or flexible. Capital asset in business a asset which is intended to use in regular operation of business but not intended for sale and held for more than a year in business.

When capital asset sold less than its cost than capital loss arises.

Ordinary Loss: Ordinary loss arises when ordinary expenses in busineses inreses fromm ordinary inome of business than ordinary losses is arises.

Wash Sale: When a investor sale a security for the purpose to repurchase it within a period of 30 days or purchase similar security within 30 days to setoff his loss after advantage of deduction of tax loss.

Example: Investor Buy 50 shares of ADS ltd on 01.01.2019 for $ 500. On 18.02.2019 value of share reduce to $300. Then investor sold the share at $300 to claim loss of Rs. $200 and repurchase the share to hold his position again