Unfold my secret recipe to Save Tax on Long Term Capital Gain on Shares

There was a time when Long Term Capital Gain on the sale of shares was exempt from tax and we thoroughly enjoyed that era as investors in the stock market. Most of my investments always were and are invested for the long term with very little shifting between stocks.

And then there came a big change where even Long-Term Capital Gain on sale of Equity shares started getting taxed at 10%.

In most of my stock investments, with God’s grace and with my stock analysis, I usually made more than average returns.

But since no one can predict markets, I also made a loss in one of my stocks. This loss was due to a sudden fall overnight, which no one could even imagine in the wildest of their dreams. This loss never recovered after that day.

But the best part of the loss is that it finally helps you to save tax whenever adjusted against the gains.

Also, Long Term Loss can only be adjusted against Long Term Capital Gains.

Now, you may be wondering, how is it possible to save tax on loss?

I purchased XYZ stock at Rs.1,000 in FY2019-20, which came down to Rs.100 overnight. So, my share price was sitting on a Rs.900 loss in my portfolio.

I had made a LTCG of Rs.700 on other stocks in the following years. I would have to pay Tax @10% on Rs.700 LTCG, which comes to Rs.70 Tax.

I adjusted all the Long-Term Capital Loss against LTCG of Rs.700 and saved Rs.70 Tax.

StockPurchase PriceMarket PriceNotional LossGainLoss Set offTax Saved
Long Term Capital Gain Tax saved

Now I was left with 2 options,

Option 1 was to sell off those loss-making shares immediately in 2019-20 and carry forward that loss for the next 8 years till 2027-28.

Another option was to sell those loss-making stocks only in the year when I sold off some stocks with long-term Capital Gains.

In long-term investments, I usually don’t change stocks but keep adding new stocks, as per my company’s research and analysis.

So, the chances of selling stocks with equal amounts of gains in the next 7-8 years and making Long Term Capital Gains looked dim to me.

YearsStockLTCLoss on sale of sharesLTCGLoss carry forward to next yearTax Saved
FY2027-28100100 Not Carried Forward, Lapsed Due to Expiry of Time Limit100*10%=Rs.10
Total Tax SavedRs.80
Carry Forward Long Term Capital Loss and Save Tax

What would happen if I would have sold all the loss-making stocks in 2019-20 itself?

If the loss-making stocks were sold in FY2019-20, I would have to carry forward that Long Term Capital Loss every year till FY2027-28.

Whatever Long Term Capital Gain that I make till FY2027-28, that loss will get set off.

I may not sell stocks with equal amounts of Long-Term Capital Gains.

So, there was a chance that I may lose that loss and also the setoff if I don’t sell any stocks or sell fewer stocks than required till FY2027-28. So, loss carried forward may get lapsed in that case, if not used before FY2027-28. Like in the above example I lost Rs.100 set off of loss and also had to pay tax Rs.10/- due to expiry of limit limit for carry forward of Loss.

I also didn’t want to sell the stocks just to set off the carried forward Long Term Capital Loss in a hurry.

All this would have kept me under pressure like traders, which I don’t like.

So, I decided to go with option 2. In this, I now sell off the required number of those loss-making stocks only when I sell any stocks with Long Term Capital Gains in my Equity portfolio.

Benefits of going with Option2,

  • No need to carry forward Long Term Capital Loss every year.
  • No rush to exhaust the loss carried forward.
  • No lapse of time limit to claim the set-off.
  • Helps me Save Tax in the year in which I have LTCG.

Long Term Capital Gain set off Against Long Term Capital Loss, Tax Saved Rs.90 in FY2023-24

YearsStockLTCLossLTCGLoss carry forward to next yearTax Saved
Long Term Capital Gain Tax Saved

Conclusion is that

Every year I evaluate at the end of the year if I have sold any stocks, and made any Long-Term Capital Gains. If I make Long Term Capital Gains, I sell off those Loss-Making stocks. I claim set off against Long Term Capital Gain and save Tax on LTCG, which otherwise would be taxed at 10%. This is how I save tax on Long Term Capital Gain on the sale of shares.

If you want any clarifications regarding Long Term Capital Gain on shares to save Tax, send your details to [email protected]

You can also contact me here to save tax on Long Term Capital Gain on shares

Is long term capital gain exempt upto 1 lakh?

Yes, Long Term Capital Gain is exempt upto Rs.1Lac. So, if you have made a LTCG of Rs.1.5Lacs. You will have to pay 10% Tax only on Rs.50000/-. Your tax on long term capital gain on shares will be Rs.50000*10%=Rs.5000/-

How is capital gains tax calculated on shares?

Capital Gain tax is calculated on Capital Gain at 10% if you have earned Long term Capital Gain or 15% if you have earned Short Term Capital Gains

What is the tax rate for long term capital gains under 112A?

Tax Rate for Long Term Capital Gain Tax is 10% on sale of shares

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