Setting Off of Losses in Case of Mutual Funds

Funds apart from equity-oriented funds, short-term gains are gains made on assets which assessee holds for less than 3 years and are taxable as per the respective tax slab of the assesse. Whereas, long-term gains made on assets which the assessee holds for more than 3 years and are taxable at 20% with indexation benefit.

Setting off losses
It is clearly laid out for instances where you make capital gains. You are required to pay taxes on the gains.

In the case of losses, the individual can set off such losses against the capital gains which the assessee makes. The assessee could reduce his capital gains by such losses. As the capital gains reduce, taxes also dip. In case the capital gains are not adequate for covering the losses, the losses which are unabsorbed could be carried forward to the subsequent financial year, and such losses can be set off against that year’s capital gains. This loss could be carry forwarded to a maximum of eight financial years.

Capital Gains on Mutual funds

Things to note

– In the case of long-term capital gains arising out of equity-oriented funds, no losses can be set off as they are exempt from tax.
– Similarly, any long-term capital loss which arises out of equity-oriented funds, the same is not allowed to be set off against any capital gain.
-The Short-term capital losses which arise from any funds are allowed to be set off against long-term as well as short-term capital gains.
– The long-term capital losses which arise from any funds apart from equity-oriented funds are allowed to be set off against LTCG (long-term capital gains) only.

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Points to remember

It should always be remembered that an assessee is allowed to set off his short-term and long-term capital gains with other assets such as property, etc. is allowed to set off the losses from a mutual fund. In case the assessee has a short-term capital loss which arises in mutual funds, he is allowed to set it off against long-term or short-term capital gains with another asset also. However, in the case of a long-term capital loss, it could be set it off with a long-term capital gain only arising out of any asset.

 The bottom line

Mutual fund houses do not deduct taxes while redeeming the fund. It is the duty of the assessee to calculate and pay taxes which is due on such capital gains.

The rules framed under the Income-tax Act allows the individuals for reducing the short-term gains and long-term capital gains from the equity to the amount of the income which falls short of assessee’s exemption limit.