If you have earned Long Term Capital Gains (LTCG) in the FY 2019-20, you are supposed to file your return. LTCG from the sale of shares/equity mutual funds (covered under section 112A) up to Rs 1 lakh is exempt from tax. However, if you have incurred/carried forward Long Term Capital Loss (LTCL) from some other avenue, there is a certain situation.
This LTCL is set off against the LTCG under section 112A without providing the benefit of the Rs 1 lakh exemption.
Setting off losses: You can set-off losses incurred under a head of income against
gains/profits from other heads subject to conditions. Both intra-head and inter-head set-off is possible.
Also, losses that couldn’t be set-off can be carried forward. Both short term and long term capital losses can be carried forward for 8 years.
Setting off LTCG from shares against other LTCL
This is where there is an issue. If you have earned LTCG from shares of less than Rs 1 lakh and have also incurred/carried forward LTCL from some other source (like from the sale of land, stocks), first you will have to set off the long-term capital gain with LTCL. If after setting off you have LTCG up to Rs 1 lac, that will be totally tax-free. Beyond Rs 1 lac you will have to pay tax at the rate of 10%.