If you hold the units for 12 months or less the loss arising out of the sale will be short-term capital loss which can be set off against either a short-term capital gain or a long-term capital gain of the same year. The balance, if any, can be carried forward and set off against either a short-term capital gain or a long-term capital gain within eight assessment years immediately succeeding the assessment year in which the loss was first computed.
If you hold the units for more than 12 months, the loss arising out of the sale will be a long-term capital loss which can be set off only against a long-term capital gain of the same year. The balance, if any, can be carried forward and set off against a long-term capital gain eight assessment years immediately succeeding the assessment year in which the loss was first computed.
If investment in mutual fund is taken as investment it will be shown in your books, and, for tax purposes, at the amount invested and not at the lower of cost or market price.
The provisions of Section 94(7) will not affect the set off or carry forward and set off of losses. Under Section 94(7), if:
*any person buys or acquires any securities or unit within three months prior to the record date;
*such person sells or transfer such securities or unit within three months after such date;
*the dividend/income on such securities or unit received or receivable by such person is exempt.
Then, the loss, if any, incurred by him on account of such purchase and sale of securities or unit, to the extent such loss does not exceed the amount of dividend or income received or receivable on such securities or unit, shall be ignored for the purpose of computing his income chargeable to tax.
This provision, in effect, will mean that if a share or unit is purchased within three months prior to the record date and if it is sold within three months from such record date, the loss arising there from will be ignored to the extent of dividend/income from such securities or unit which enjoyed the exemption.
The excess loss over such dividend/income can, however, be set off or carried forward and set off in the manner stated above.