Capital gains are made when you made when you sell a capital asset at a price that is higher than the purchase price. For example, if you bought 400 shares of Just Dial at Rs.550 and then sold these shares at Rs.700 after 2 years, then it will result in a capital gains of Rs.60,000 {400 x (700 – 550)}. This is quite simple. But what if you sold these shares of Just Dial at a loss, which is perfectly possible in a volatile market. Say you sold after 2 years at Rs.300 against your purchase price of Rs.400. in this case, the investor would have made a long term loss of Rs.(-40,000) {400 x (300 – 400)}. The question now is what can I do with this loss? Don’t worry; the Income Tax Act is quite just in this regard. Just as you paid tax when you made capital gains, you will also get a tax shield when you make losses. Tax shields means that any loss can be written off against capital gains on other assets. Such losses can also be carried forward for a period of 8 years. Effectively, you pay LTCG or STCG tax on the net gains after adjusting present and past losses. That is what a tax shield is all about.