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By reading the title of the post you will be thinking that there is no tax on long term capital gain on shares then what is the relation between tax saving and long term capital loss?

But after reading the next few lines you will definitely understand the trick(tax planning tip).The trick is legitimate method to save the tax.

Brief Provision of Tax on LTCG on shares

To understand this tip first of all I would like to discuss the taxabilty provisions on Long term capital Gain/Loss From shares and securities

  1. From 1.10.2004 onwards sale of a long term security (means where holding period is more than 12 month) ,on which STT paid (Securities Transaction Tax) is not liable for tax and fully exempted from Income Tax.
  2. As the long term capital gain from the sale of securities is exempted from tax ,loss from such deals can not be adjusted from the other capital gain and can not be carry forward either.
  3. Securities Transaction tax (stt) is payable for transaction made through stock exchanges.

what is the trick/tip

  • if you are planning to sell the shares on which you will have long term capital loss ,then sell them out of the exchange without paying STT and save tax .lets study with a example.

Example:Rajiv has sold a shares for 300000 which he has purchased for 500000 ,13 months back.similarly he has also sold a land for 500000 which he has purchased for 100000 four year ago.Rajiv has also salary income for Financial year 2008-09.

calculate tax in two situations

  1. shares has been sold through stock exchange means stt paid.
  2. shares has been sold to friend out of exchange.

Ans:Case -1:Calculation of tax Case one(through stock exchange)

income from salary =300000

Income from capital gain on capital gain =400000


tax liability=on 150000-300000 @ 10%=15000

20% on 400000 LTCG =80000

Net tax liability=15000+80000=95000

long term loss from shares sold through exchange being exempted income can not be adjusted from LTCG on land,and not not be carry forward either.

Case-2:(shares sold to friend out of stock exchange ) no stt paid

Income from salary =300000

Income from Long term capital gain

LTCG from land =400000

Less:LTCL from Shares=200000

net LTCG =200000

tax liability

salary=10% on 300000-150000=15000

Ltcg=20% on 200000 =40000

net tax liabilty =55000

so in First case Tax Liability is 95000 where as in second case the tax liability is 55000 means saving of 40000 tax by not selling shares through exchange !!!

  • Further if we have sold share out of exchange this year and made a loss and have no other long term capital gain then we can carry forward the loss for next eight years and adjust the loss from other long term gain,means the benefit is definite if we adjust it in this year or next eight year.


  1. To avoid complication in calculation Indexation on cost of capital assets has not been done.
  2. Shares and securities word has been used interchangeable though differently defined under the act.so read accordingly.
  3. Sucharge and Cess on tax has also not shown to avoid complications.
  4. You can also save tax from short term capital loss from same trick.
  5. Short term capital gain saving another tip is here.

Dear friends I have just provided the clue further elaboration can be done at your end.

please comment

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Category Income Tax   Report

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