Tax harvesting: Can I set off losses from PMS against capital gains from stocks and mutual funds?

Investors often face confusion when balancing gains from some investments against losses from others. Tax rules around PMS, stocks, and mutual funds can seem complicated at first glance. A clear understanding of set-off provisions helps in making informed decisions. Today's Q&A explains this in detail in response to a reader's query.

**Question: I have ₹5 lakh capital gains from the sale of stocks and mutual funds in this financial year so far. 75% of my capital gains are long-term, and the remaining are short-term. I am holding a PMS of ₹50 lakh for over 8 months, which is currently valued at ₹47 lakh, with a net loss of ₹3 lakh. Can I set off the capital gains from stocks and mutual funds against losses from PMS by exiting the PMS completely?  What will be my net LTCG and STCG gain to be paid in the above case? **

In most of the cases, the profits/losses under the PMS are generally treated as capital gains transactions unless the frequency and volume of such transactions in the PMS are very high, in which case the same may get taxed under the business head.

From your question, it seems that your PMS does not have a huge volume, and therefore the profits/losses will get taxed under the head capital gains.

Investments in listed shares become long-term when held for 12 months or more. As your investments under the PMS are just 8 months old, the profit/loss on the sale of individual scrips will be short-term in nature. The profits/losses of the PMS will be computed not on an overall basis, but will be computed scrip-wise individually for each transaction, so it is advisable only to sell the shares on which there is a book loss instead of selling the entire portfolio under the PMS.

In this situation, your loss for the year would be higher than 3 lakhs overall loss. The loss arising from the sale of loss-making scrips or on the liquidation of the entire portfolio, as the case may be, will be short-term loss, and the same will be adjusted first against the short-term capital gains already booked, and the balance shall be adjusted against the long-term capital gains already booked during the current year.