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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Taxation of Equity Products

Ms. Kavita Rao, a resident individual, has the following capital gains in a year on listed equity shares with STT paid: short-term capital loss of Rs 40,000 and long-term capital gain of Rs 2,00,000. Assume the LTCG exemption is Rs 1,25,000 and the rate is 12.5%. Under the rules for set-off, what is her LTCG tax before cess?

A short-term capital loss can be set off against long-term gains. Net LTCG becomes Rs 1,60,000, and after the Rs 1,25,000 exemption Rs 35,000 is taxable at 12.5%, giving Rs 4,375 before cess. Ignoring the set-off would give a higher tax.

  1. ARs 4,375Correct
  2. BRs 9,375
  3. CRs 10,000
  4. DRs 0

Explanation

A short-term capital loss can be set off against long-term capital gain. Net LTCG = 2,00,000 - 40,000 = 1,60,000. After the exemption of 1,25,000, taxable = 35,000. Tax at 12.5% = Rs 4,375. Rs 9,375 applies the exemption first and then deducts the loss incorrectly in a different order, giving 75,000-... a wrong base.

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