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

A PMS client's portfolio manager sold listed equity shares at a short-term loss in the same financial year in which the client has short-term gains from other listed shares in the same account. How is the loss generally treated?

The short-term loss can be set off against the client's short-term capital gains of the same year, and also against long-term gains. This lowers the taxable gain. It cannot be set against salary income, and the portfolio manager does not reimburse it.

  1. AIt can be set off against the short-term gains of that yearCorrect
  2. BIt is ignored and cannot be used
  3. CIt can be set off only against salary income
  4. DIt is paid back to the client by the portfolio manager

Explanation

Under the set-off rules, a short-term capital loss can be set off against both short-term and long-term capital gains of the year. So it can reduce the short-term gains in the same account. It cannot be set off against salary income, and it is not reimbursed by the portfolio manager.

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