Let's see what investors can do if their mutual fund investments are losing money
Gains from mutual funds are taxed as capital gains whenever the investment is redeemed. If someone has invested in equity funds and the investment is sold within a year, the gains (short-term capital gains) are taxed at 15 per cent. If they are sold after a year, the gains (long-term capital gains) beyond Rs 1 lakh are taxed at 10 per cent.
Likewise, in case of a non-equity fund, if the investment is sold within three years, the gains (short-term capital gains) are added to the taxable income and taxed as per the applicable slab. If they are sold after three years, the gains (long-term capital gains) are taxed at 20 per cent after providing the benefit of indexation.
However, there can be scenarios when redeeming your mutual fund investments actually result in a loss rather than a gain. For example, anyone who might have invested in an equity fund at the beginning of this year would have to bear a loss if they redeem their investments right now. Sensex has fallen by over 3 per cent since the beginning of this year.
So, can the said loss be claimed as a refund from the Income Tax Department? Well, it cannot be claimed as a refund but one can still use it to reduce their taxability. The Income Tax Department allows adjusting your capital losses against other capital gains during the year.
For example, let's say you realised a gain of Rs 20,000 on selling your equity fund. There is also a loss of Rs 10,000 from another fund. Then the loss of Rs 10,000 can be adjusted against the gain of Rs 20,000. The taxable gains would be only Rs 10,000 (Rs 20,000 - Rs 10,000). In case you do not have any gains to adjust your losses within the same year, the Income Tax Department also allows carrying it for eight subsequent years and adjust them against the gains that may arise in the said years. However, there are certain rules to the same.
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