Order of Capital Gain setoff and Section 54 exemption

first way is correct........

If you look at Exemption u/s 54 series., all are available wrt sold/transfered asset, ie one to one relationship.

So, that exemption you have to utilised fully for that assets gained Rs. 10Lacs and other asset bearing loss has no adjustment other than carried forward the same...

Hence, the correct way is to carry forward that Capital Loss.

  yes agree with arvind .........correct way is to carry forward it to next year and it is eligible for set off in next year aganist LTCG 

Thanks Vishal and Arvind for replying. I thought so too. But the doubt cerpt in because the ITD Excel for ITR does it the second way. As per the excel sheet formula, total LTCG and Carry Forward LTCL are both 0. THis is because it first sets off LTCL against LTCG before considering sec 54 deductions.

I cross checked against the calculation by tax-smile, it too does the same thing, 1st balance LTCG against losses, then exempt the remaining against sec 54 deduction. The one-2-one application is done only to check eligibility of the deduction vis-vis the date of purchase of the bond vs date of cap gain.

Since the 2 different software's are doing it the same way, I think LTCL cannot be carried forward.

Any diverging openions are truly welcome. 

The Act lays down following guidelines which have to be strictly adhered :

1. Losses under the head “Capital gains” cannot be set off against income under other heads of income.

2. Short-term capital loss can be set off against any capital gain (whether long-term or short-term)

3. Long-term capital loss can be set off only against long-term capital gain.

4. A long-term capital loss for a case where the long-term capital gain is exempt from tax will have no value. For example, if a share is held for a year or more and then sold at a loss, there will be no tax benefit. So this loss cannot be set off against any other income.

5. If the capital loss cannot be set off against the capital gain of that particular year then it can be carried forward for the next eight years.

6. Such loss can be carried forward only when the return is filed within time.

Dipesh,

Just to clarify things, the 10lakh LTCG is taxed at 20% and is not tax free LTCG from sale of quity fund/shares. The LTC loss is from debt fund again taxed at 20%.  So point 3 and 4, you highlighted does not apply in this case.

Thanks for answering...