Set-Off of STT-Paid Losses Against 30% STCG is Allowed: ITAT Mumbai
iShares ESG Aware MSCI ETF (ITA No. 2072/Mum/2025)
Facts:
1. All assessees are Mauritius-based Foreign Portfolio Investors (FPIs) registered with SEBI. They earned short-term capital gains (STCG) taxable under two provisions: Section 111A (15%) – gains from STT-paid transactions. Section 115AD (30%) – gains from STT-exempt transactions (e.g. certain off-market or foreign securities).
2. They also incurred short-term capital losses (STCL), primarily from STT-paid transactions. The assessees chose to first set off the STCL against STCG taxed at 30% (non-STT), to minimize overall tax liability.
3. AO rejected the set-off hierarchy adopted by the assessees. AO insisted that STCL taxed at 15% should first be set off against STCG taxed at 15%, and only the remaining can be adjusted against 30% STCG.
4. DRP upheld AO’s view, stating that IT return forms provide separate columns for each tax-rate category.. DRP also maintained that the matter is pending before Bombay HC in DIT v. DWS India Equity Fund, ITA No. 1414 of 2012.
ITAT Mumbai held as below:
1. Section 70(2) allows set-off of STCL against any STCG from other assets, as long as both are computed as per sections 48–55.
2. There is no legal hierarchy based on tax rates (15% vs 30%). Sections 111A and 115AD only prescribe tax rates, not how losses should be set off.
3. No distinction exists in law based on whether STT is paid or not when applying loss set-off. Tax computation under Sec 48–55 remains the same, whether STT is paid or not.
4. Appeals in all three cases partly allowed for statistical purposes.
The copy of the order is as under:
