If I redeem my investment in a mutual fund and it turns out that I made a loss of, say, ₹10,000, can this amount be shown as a loss against income and be eligible for income tax deduction (just like I pay extra tax when I make income from such investments)?
- Kanishka Khandelwal
When you make a loss on sale of a mutual fund investment, the loss can be short-term capital loss or long-term capital loss. How long you have held the investment and the asset class (equity or debt) would determine the nature of your loss. For example, equity mutual funds held over a year qualify for long-term capital gains, whereas debt mutual funds qualify for long-term capital gains only if they are held over three years. Capital loss cannot be set off only against capital gains, not against any other income. Short-term capital loss on sale of shares and mutual funds can be set off against both short-term and long-term capital gains. Long-term capital loss can be set off only against long-term capital gains. However, long-term capital loss on sale of shares and mutual funds where Securities Transaction Tax (STT) is paid cannot be set off against any capital gains. This means you cannot set off your long-term capital loss incurred on sale of equity mutual funds. Capital loss can be carried forward for eight years.