A method and apparatus for significance group flag coding are disclosed. According to the present invention, the TUs are divided into sub-blocks and significant group flags associated with a TU are coded based on context set selection. The context set selection depends on horizontal sub-block index, vertical sub-block index, or both the horizontal sub-block index and the vertical sub-block index. In one embodiment, two sub-blocks use same context set selection for significance group flag coding if the two sub-blocks use same context set selection for significance map coding.
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