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

In a discretionary PMS account, the portfolio manager sells shares during the year and the client incurs a short-term capital loss on one stock and a short-term capital gain on another. Which treatment is correct under the general set-off rules?

A short-term capital loss can be set off against both short-term and long-term capital gains in the same year, with any unabsorbed balance carried forward for eight assessment years. It cannot be set off against salary income, which is why the other options are wrong.

  1. AThe short-term loss can be set off only against long-term gains
  2. BThe short-term capital loss can be set off against both short-term and long-term capital gains of the same yearCorrect
  3. CCapital losses can be set off against salary income
  4. DShort-term losses lapse immediately and cannot be set off at all

Explanation

A short-term capital loss can be set off against any capital gains, short-term or long-term, in the same year, and any balance can be carried forward for 8 years. A long-term loss can be set off only against long-term gains. Capital losses cannot be set off against salary income.

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