Long-term capital loss can only be set off against long-term capital gains

I had invested ₹30,30,000 in ICICI Pru Balance Fund - Regular Plan Monthly Dividend Fund in 2017. I received monthly dividends regularly, the amount decreasing as per market conditions. Since this was directly credited to my savings account I foolishly did not try to find out its NAV. From Apr 2020 (FY 20-21) dividends stopped being credited. When I discovered that value had drastically reduced, I redeemed the entire holding on 29 May 2020 for ₹21,04,000. Thus I suffered a loss of ₹9,26,280. I did not receive any dividend from this fund in FY 20-21. For filing returns this year, whilst dividends will form part of income, how do I treat the loss (principal amount). Can I enter in schedule CFL details of losses to be carried forward in future years of ITR-2? Can part of the loss or whole (if applicable) be offset against income in the current year whilst computing final tax payable?

- Name withheld on request

ICICI Prudential Balanced Fund is an equity-oriented hybrid fund and the tax treatment would be similar to that of an equity fund. In your case, since you had invested in the year 2017, the loss will be classified as long term capital loss. As per the provision under Income Tax Act, the Long Term Capital Loss can be set off only against Long Term Capital Gains. Hence, you can set off this loss only against long term gain in the previous year.

However, if you do not have long term gains then you can carry forward this capital loss up to 8 years. To know the exact amount of Long Term Capital Loss, you may request a capital gain statement from ICICI Prudential AMC as there will be an impact of grandfathered Net Asset Value (NAV as of 31 Jan 2018), which was introduced along with long term capital gain tax on equity-oriented mutual fund investments in the year 2018.

You can further consult with your chartered accountant or tax consultant on this matter for better clarification.

- Harshad Chetanwala, founder, Mywealthgrowth.com