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Capital losses and gains

Capital losses arising from a tax-free source of income cannot be set off against any gains...

Can I offset long term capital losses rising from sale of mutual funds, against long term capital gains from sale of FMP. Both gains and losses were made in the same year.
- Sanjay Sharma

Long term capital loss can be adjusted only with long term capital gains. This is true for debt income, but there is an exception for equity. If the income from source is exempted from tax (i.e. long term gains from equity), loss from such a source cannot be set-off. This means long term losses from sale of equity funds cannot be set off at all, because the long term gains from equity instruments are tax-free.

You have not mention the type of fund in which you incurred a long term capital loss. Hence, if it is an equity mutual fund, set-off will not be possible.

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