Tax treatment under LTCG/LTCL for Debt and Equity MFs on selling and set off conditions

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This query is : Resolved

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This discussion clarifies the tax treatment and set-off rules for long-term capital gains (LTCG) and losses (LTCL) from selling debt and equity mutual funds held for over three years. It confirms that LTCL from debt funds can be set off against LTCG from equity funds, and vice versa. However, the Rs 1 lakh exemption typically applied to equity LTCG does not apply to net gains from debt funds.

Sunil Joshi

Sunil Joshi (Querist)

15 September 2023 I wish to know how to set off LTCG against LTCL for Debt and Equity Mutual Fund Units.

All the units both debt and Equity category were bought more than 3 years ago. (But No grandfathering) So 20% tax after indexation is still applicable for the debt funds, as bought before 1/04/2023 and sold now.

1) If I sell Debt MF after 3 years' holding and incur LTCL after indexation. (bought 4 years back)

2) Also, if I sell my Equity Mutual Fund units after 1 year holding and incur LTCG. Can I set off LTCL from debt fund mentioned in item 1, against the LTCG from the sell of Equity fund? If the LTCL is more than the LTCG, then can I carry forward the LTCL for next 8 years? If the LTCG happens to be more than the LTCL, then the net remaining LTCG is taxable (amount greater than Rs 1lahk), at the rate of 10%, am I right? Next case,

3) I incur LTCG from the sell of Debt Mutual Fund units after indexation after three years.

4) I incur LTCL from the sell of my Equity Mutual Fund units after one year. Can I set off LTCL from Equity fund mentioned in item 3, against the LTCG from the sell of Debt fund? If the net result is LTCG from the Debt Fund, will it be taxed at the rate of 20%? Please let me know.

My point is, even though the tax treatment of LTCG/LTCL from the sell of Debt and Equity Funds are different, they still can be set off against each other? The net LTCG after set off, is from Debt fund, can it still get Rs. 1 lakh exemption from tax?

Sunil Joshi

suniljoshi2005 @ gmail.com