Tax rules for setting off long-term capital loss from various debt funds

As per the income tax provision, a taxpayer is allowed to set off losses of the current year under the profits under the same head as well as against certain other heads. Since the debt funds and the US funds were sold after having been held for more than three years, the gains and losses are treated as long-term. No distinction is made between capital assets based on the country of investments in debt funds. The taxpayer is allowed to set off his long-term loss against the long-term capital gains for the same financial year and has to pay tax only on the balance of long-term capital gain. The investments which have become long-term are eligible for indexation benefits except investments made in listed shares and equity-oriented schemes.

So you can set off the long-term loss in respect of US funds against long-term capital gains in respect of other debt funds. In case the setting off results in net long-term capital loss for the year the same cannot be adjusted against short-term capital gains for the same financial year. The net long-term capital loss for the year also cannot be set off against income from other sources of the same year and has to be carried forward for set off against long-term capital gains in eight subsequent years.

In respect of investments made, after 31 st March 2023, in mutual fund schemes with domestic equity investment does not exceed 35% the profits are to be treated as short-term capital gains irrespective of holding period and will be taxed at your slab rate.

Balwant Jain is a tax and investment expert and can be reached on jainbalwant@gmail.com and @jainbalwant on his Twitter handle.

Updated: 21 Jun 2023, 09:09 AM IST