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

A PMS client's portfolio sells shares during the year, realising a short-term capital loss of Rs 2,00,000 on one stock and a long-term capital gain on another stock. Under the general rules of the Income-tax Act, which statement is correct?

A short-term capital loss can be set off against both short-term and long-term capital gains in the same year. Only long-term capital losses are restricted to long-term gains. Any unabsorbed short-term loss can be carried forward for later years.

  1. AA short-term capital loss can be set off against either short-term or long-term capital gainsCorrect
  2. BA short-term capital loss can be set off only against short-term capital gains
  3. CA short-term capital loss can be set off only against salary income
  4. DA short-term capital loss cannot be set off or carried forward

Explanation

Short-term capital losses may be set off against both short-term and long-term capital gains in the same year. Long-term capital losses, by contrast, can be set off only against long-term capital gains. Unabsorbed short-term losses can be carried forward for eight assessment years. The option restricting set-off to short-term gains describes the rule for long-term losses, so it is wrong.

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