Section 112A was introduced in the 2018 Budget to tax long-term capital gains (LTCG) on the sale of listed securities. This section replaced the previous exemption under Section 10(38) and is applicable from the financial year 2018-19. It imposes a tax rate of 10% on LTCG exceeding ₹1 lakh, covering equity shares, equity-oriented mutual funds, and units of business trusts.
Let’s break down the key aspects of Section 112A and its implications.
Scope of Section 112A
For taxpayers to avail of the concessional rate of 10% under Section 112A, the following conditions must be met:
Securities Transaction Tax (STT):
For equity shares: STT must be paid during acquisition and sale.
For equity-oriented mutual funds or business trust units, STT must be paid at the time of sale.
Long-Term Capital Assets: The assets must qualify as long-term, requiring a holding period of more than one year.
Deductions and Rebates:
Chapter VI-A deductions cannot be claimed against such gains.
Rebate under Section 87A is not applicable on tax payable under Section 112A.
LTCG Tax Rate and Applicability
Under Section 112A, LTCG is taxed 10% on gains exceeding ₹1 lakh in a financial year. This tax rate applies after deducting the exemption threshold.
Example 1:
Net LTCG: ₹2,00,000
Exemption: ₹1,00,000
Taxable LTCG: ₹1,00,000
Tax Payable: ₹10,000 (10% of ₹1,00,000)
Example 2 (Resident Individual):
If the total income (excluding LTCG) is below the basic exemption limit, the unused portion of the limit can reduce taxable LTCG.
Total income (excluding LTCG): ₹1,50,000
Basic exemption limit: ₹2,50,000
Remaining exemption: ₹1,00,000
Net LTCG: ₹2,00,000
Taxable LTCG: ₹1,00,000 (₹2,00,000 – ₹1,00,000)
Tax Payable: ₹10,000
Set-Off of Long-Term Capital Loss
Against LTCG: Long-term capital losses can only be offset against long-term capital gains.
Against STCG: Short-term capital losses can be offset against short-term and long-term capital gains.
For example, if a taxpayer incurs an LTCG of ₹1,50,000 and an LTC loss of ₹50,000, the taxable LTCG would be ₹1,00,000 (₹1,50,000 – ₹50,000).
Grandfathering Provisions
To ease the transition after the introduction of Section 112A, a grandfathering clause was implemented for assets purchased before February 1, 2018. Gains up to January 31, 2018, remain exempt.
Cost of Acquisition Calculation:
Take the lower of:
Fair Market Value (FMV) as of January 31, 2018
Sale consideration
Take the higher of:
Purchase price
Value from Step 1
Example:
Purchase Price: ₹20 lakh (April 2009)
FMV (Jan 31, 2018): ₹50 lakh
Sale Price (June 2019): ₹53 lakh
Cost of Acquisition: ₹50 lakh (higher of purchase price and FMV)
Taxable Gain: ₹3 lakh (₹53 lakh – ₹50 lakh)
Taxable Amount Above ₹1 Lakh: ₹2 lakh
Tax Payable: ₹20,000 (10% of ₹2 lakh)
Fair Market Value (FMV)
Listed Securities: FMV is the highest quoted price on January 31, 2018.
Untraded Securities: FMV is the highest quoted price on the last trading date before January 31, 2018.
Unlisted Units: FMV is the Net Asset Value (NAV) as of January 31, 2018.
Post-2018 Listed Shares: FMV is adjusted for the Cost Inflation Index (CII) for FY 2017-18.
Reporting LTCG Under Schedule 112A
For AY 2020-21 onwards, taxpayers must report LTCG in Schedule 112A of their Income Tax Return (ITR). Details include:
ISIN code of the security
Name of the scrip
Number of units/shares sold
Sale price, purchase price, and FMV
Frequently Asked Questions
1. When did Section 112A come into effect?From April 1, 2018, applicable to FY 2018-19 onwards.
2. What is the tax rate under Section 112A?10% on LTCG exceeding ₹1 lakh in a financial year.
3. Can long-term capital loss be set off?Yes, LTC losses can be set off only against LTC gains.
4. How is the FMV determined?FMV is the highest quoted price on January 31, 2018, or NAV for unlisted units.
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