Taxability of Capital Gains on transfer of Listed Shares and Equity Mutual Funds is always be the favourite topic for all the professionals. But most of the professionals still got confused at the time of giving effect for Capital Loss arising from Listed securities and Equity Mutual Funds. Hence, today I will discuss about Capital Loss in case of Listed Shares and Equity Mutual Funds.

 Short Term Capital Loss from Shares and Mutual Funds:

Short Term Capital Loss arising from transfer of Shares and Mutual Funds can be set off against both i.e Short Term Capital Gains as well as Long term Capital Gains.

mutual fund, 3D rendering, text on metal

Long Term Capital Loss from Shares and Mutual Funds:

This is the most crucial concern for all the investor as well as the professional who are giving taxation impact for such transactions.

Till 31st March, 2018, any Long Term Capital Loss arising from sell of listed shares or equity mutual fund is considered as “Dead Loss”. This is mainly because, long term capital losses were not allowed to be set off or carried forward on sale of listed equity shares and equity MF units as the capital gains arising from these were tax exempt u/s 10(38). As per income tax law, capital losses cannot be derived or set off from exempt income.

But Finance Act, 2018, make an amendment in Section 10(38) i.e. Long Term Capital Gains on Listed shares or Equity MF realised after 31.3.2018 by an individual will remain tax exempt only up to Rs 1 lakh per annum i.e. the as per new provision 10% would be levied on Long Term Capital Gains of an individual exceeding Rs 1 lakh in one fiscal year. For example, if your LTCG is Rs 1,50,000 in FY 2020-21 then 10% will be levied on Rs 50,000 as Long Term Capital Gains.

Hence, Now with effect from 01 April, 2018, these listed securities and equity mutual funds are no more tax exempt under Income Tax Act. Hence, any Long Term Capital Loss arising from such listed shares or equity Mutual funds will not be called as Dead Loss but allowed to be set off against this Long Term Capital Gains calculated u/s 10(38) even now if the loss is more than that capital gains then they are allowed to carry forward it to next year upto 8 Assessment Years.

Conclusion:

Capital Loss Set-Off Carry Forward
Short Term Short Term Capital Gains or

Long Term Capital Gains

Upto 8 Assessment Years
Long Term Long Term Capital Gains u/s 10(38) Upto 8 Assessment Years

I hope this article is help you to solve your doubts regarding capital loss arising from listed shares or equity mutual funds

The author is a practising CA based at Indore (MP) and can be contacted at jkmanghani@rediffmail.com.

(Republished with Amendments by Team Taxguru)

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2 Comments

  1. SL GUPTA says:

    Please advise whether there is further development in the case.
    Is it applicable to salaried individual resident Indian?
    Does it apply to other jurisdiction, say Delhi?
    Is the decision also applicable in case of LTCL on sale of shares to be set-off against STCG on sale of shares (same source),or say STCG on sale of shares to be set-off against LTCL on sale of shares, where other conditions are met, i.e. deal on NSE/BSE, and STT paid on both legs of purchase/sale. Otherwise please advise how the LTCL on sale of shares can be set-off in case of salaried individual resident Indian.

  2. SL GUPTA says:

    Please advise whether there is any further development in the case.
    Is it applicable to salaried individual resident Indian?
    Is the decision applies to other jurisdictions also, say Delhi?
    Is the decision also applicable to LTCL from sale of shares to be set off against STCG from sale of shares (same kind of source) or say STCG from sale of shares to be set-off against LTCL from sale of shares where other conditions are met i.e. on a recognized exchange, STT paid on all legs of purchase/sale. Otherwise pls advise how LTCL from sale of shares can be set-off in case of salaried individual resident Indian.
    Thanx and regards,

  3. CA. Jai Kishan says:

    Sear SK,

    The benefit of Indexation is available as per the second proviso of section 48 of the Income tax on transfer of long term capital assets. Normally it is available in all such cases except where it is specifically mentioned in the law that the benefit of the same is not available.

    For Example in case of transfer of shares by an NRI as per the conditions mentioned in the first proviso of Section 48 or the cases falling under section 112 (1) (c) (iii), such benefit of Indexation will not be available to an assessee. Secondly, if an assessee opts to pay tax @ 10% on transfer of long term capital asset instead of tax @ 20%, the benefit of Indexation will not be available.

    Regards,

  4. SK says:

    In light of the tribunal order, would the assessee be able to claim indexation benefit while claiming the long term capital loss?

  5. CA KRISHAN KHANDELWAL says:

    this is a tribunal deceision , not binding on all jurisdictions. But, this shall definitly add weightage to the arguments in any case.

  6. CA Jai Kishan says:

    Dear Nishant,

    Until and unless, there is any stay on the impugned order by the higher appellate fora a or the court, this order of the tribunal stands final.

    If the AO denies, it will be a case of contempt of court and violation of principles of natural justice. Therefore, he is bound to abide by this order legally and also judiciously. Needless to say further that Tribunal is higher and superior authority under the law above the AO.

    Despite of the above, the decision of the hon’ble Tribunal is also based upon the judgements of the Supreme Court and High Court.

    Thanks and best regards,

  7. nishant says:

    but this is decided by tribunal. Still this can be challenged and assessee cant rely on judgment of tribunal because A.O can deny the judgment. We have to wait for the judgment of Court in my opinion.

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