Capital Gain No Mention of SetOff Hierarchy in Capital Gains

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The Tax Publishers Income Tax--Capital Gain No Mention of Set-Off Hierarchy in Capital Gains Srivatsan Ranganathan The author has discussed tax arbitrage availability in the manner of set-off under capital gains in this short write up. 1. Legal provisions Under section 70(2) and (3), loss from short-term capital asset may be set-off against income from long-term gains or short-term capital gains. Losses from long-term capital loss may only be set-off against long-term capital gains. The rationale behind this being that the set-off should normally be permissible if arising out of a loss from a lower tax rated capital asset with that of a higher tax rated capital asset and not vice versa. Also due to the principle that the same genre should be offset against one another under long-term capital asset. Section 50AA deems market linked debenture, specified MF units acquired after 1-4-2023 or unlisted bond/debenture transferred after 23-7-2024 to be a deemed short-term capital gain. The possibility of having a short-term loss under section 50AA is remote as these are debt instruments by and large, though the same cannot be ruled out in case of specified ETF's/market linked debentures. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers

Income Tax--Capital Gain

No Mention of Set-Off Hierarchy in Capital Gains

Srivatsan Ranganathan

The author has discussed tax arbitrage availability in the manner of set-off under capital gains in this short write up.

1. Legal provisions

Under section 70(2) and (3), loss from short-term capital asset may be set-off against income from long-term gains or short-term capital gains. Losses from long-term capital loss may only be set-off against long-term capital gains. The rationale behind this being that the set-off should normally be permissible if arising out of a loss from a lower tax rated capital asset with that of a higher tax rated capital asset and not vice versa. Also due to the principle that the same genre should be offset against one another under long-term capital asset.

Section 50AA deems market linked debenture, specified MF units acquired after 1-4-2023 or unlisted bond/debenture transferred after 23-7-2024 to be a deemed short-term capital gain. The possibility of having a short-term loss under section 50AA is remote as these are debt instruments by and large, though the same cannot be ruled out in case of specified ETF's/market linked debentures.