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NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Taxation (NISM XXI-A)

A PMS client has a long-term capital loss of Rs 40,000 on listed equity and a short-term capital gain of Rs 90,000 on other listed equity in the same year. What is the correct treatment?

The long-term loss cannot be set off against the short-term gain. It is carried forward to be used only against future long-term gains, while the Rs 90,000 short-term gain is taxed in full this year.

  1. ASet off the loss against the short-term gain, leaving Rs 50,000 short-term gain
  2. BCarry forward the loss, as a long-term capital loss can be set off only against long-term capital gains, and tax the Rs 90,000 short-term gain in fullCorrect
  3. CSet off the loss against salary income
  4. DIgnore both the loss and the gain

Explanation

A long-term capital loss can be set off only against long-term capital gains. It cannot be set off against short-term gains, so the Rs 90,000 short-term gain is fully taxable. The Rs 40,000 loss is carried forward for up to 8 assessment years to be set off against future long-term gains.

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