Yes, you must file ITR (Income Tax Returns) for negative income or losses. While filing ITR, you have an option of filling in the details of the losses incurred by you. If you file the return for your loses, you can carry them forward to the future years, in which these loses can be set against future profits when they arise.
However, if you do not file your returns by the due date, you will not be able to carry forward your losses to the next financial year. This, in turn, will aggravate or compound your losses as when you carry forward your losses you reduce your future tax liabilities.
For instance, suppose your income is Rs. 6,00,000 and the loss from your house that you have let out is Rs. 8,00,000. If you do not file your ITR, then you will not be able to carry forward this loss to the oncoming years. Moreover, even if you file your returns a month late, you will still not face any penalty as the loss will abate against your income, but you will not be able to carry it forward the loss of Rs. 2,00,000 as you filed the ITR late.
If you have any income in the year of loss, your losses can be set off against that income. This will reduce your taxable income by a hefty margin. If you do not have any income or your losses are higher than income, you can carry the loses forward and adjust them in your future tax returns. However, one thing that you must remember that while short-term capital losses can be set off against either short or long-term gains, long-term capital losses can be only set off against long-term capital gains.
Taxation on Loses filed in the ITR
• If you have negative income in a financial year, you are not required to pay taxes
• If you can set-up your losses with another income source you have, you can reduce the loss amount from your taxable income