Section 112A: Long-Term Capital Gains on Equity Explained
- Rajesh Kumar Kar
- Dec 3, 2025
- 9 min read
Section 112A of the Income Tax Act, 1961 defines how long-term capital gains (LTCG) from equity shares, equity-oriented mutual funds, and business trust units are taxed in India. For the financial year 2024–25, gains above ₹1.25 lakh are taxed at 12.5%, an increase from the earlier 10% rate applicable on gains exceeding ₹1 lakh. This adjustment, introduced through Budget 2024, aims to streamline equity taxation while balancing investor interests and government revenue.
Table of Contents
Understanding Section 112A of the Income Tax Act, 1961
Section 112A of the Income Tax Act, 1961 deals with the taxation of long-term capital gains (LTCG) arising from the sale of listed equity shares, units of equity-oriented mutual funds, or units of business trusts. This section was introduced to bring consistency in capital gains taxation after the abolition of the long-term capital gains exemption in 2018. Under Section 112A, LTCG exceeding ₹1.25 lakh in a financial year is taxable at a flat rate of 10%, without the benefit of indexation. This provision ensures that investors are taxed fairly while encouraging long-term investment in the Indian capital markets.
Applicability and Key Provisions of Section 112A
Section 112A applies when the following conditions are met:
The asset being sold must be a listed equity share, an equity-oriented mutual fund, or a unit of a business trust.
The securities transaction tax (STT) must have been paid both at the time of acquisition and sale.
The asset must be held for more than 12 months to qualify as a long-term capital asset. The key highlight of this section is the exemption threshold—LTCG up to ₹1.25 lakh in a financial year is tax-free. Any amount exceeding this limit is taxed at 10% without indexation, ensuring that the system remains simple and transparent for taxpayers.
Tax Rate on Long-Term Capital Gains under Section 112A
The tax rate under Section 112A is fixed at 10% for long-term capital gains exceeding ₹1.25 lakh in a financial year. This rate applies uniformly across individual taxpayers, Hindu Undivided Families (HUFs), and non-residents, provided the income is from eligible securities. No indexation benefit is allowed on such gains. Additionally, surcharge and cess are applied as per standard income tax rules. The 10% rate is lower than most other long-term capital gains provisions, reflecting the government’s intention to incentivize long-term investment in equity markets.
How to Compute LTCG under Section 112A
The computation of long-term capital gains under Section 112A involves the following steps:
Determine the full value of consideration received from the sale of shares or units.
Deduct the cost of acquisition and transfer expenses.
The resulting amount is the long-term capital gain. For assets acquired before February 1, 2018, a grandfathering clause applies. The cost of acquisition is considered the higher of (a) the actual purchase price, or (b) the lower of the fair market value as of January 31, 2018, or the sale price. This ensures that historical gains prior to 2018 are not taxed.
Exemption Limit of ₹1.25 Lakh under Section 112A
Taxpayers enjoy an exemption of up to ₹1.25 lakh on long-term capital gains from eligible equity shares or mutual funds during a financial year. Only gains exceeding this threshold are taxed at 10%. This exemption applies per taxpayer, meaning joint holders of mutual funds or equities can claim it individually. It helps small and medium investors keep moderate gains tax-free while ensuring larger investors contribute proportionately.
Is Section 112A Applicable to NRIs?
Yes, Section 112A applies to Non-Resident Indians (NRIs) as well. NRIs earning long-term capital gains from the sale of listed equity shares or mutual funds in India are subject to a 10% tax rate on gains exceeding ₹1.25 lakh. However, the benefit of the exemption threshold is available only if the income is taxable under Indian law and not relieved under a Double Taxation Avoidance Agreement (DTAA). NRIs can also avail credit for taxes paid in India when filing returns in their country of residence.
How to Report LTCG under Section 112A in Income Tax Return
While filing the Income Tax Return (ITR), LTCG under Section 112A must be disclosed under the “Capital Gains” schedule. The taxpayer must specify the ISIN code, sale consideration, cost of acquisition, and date of sale. The Income Tax portal automatically cross-verifies these details with data in the Annual Information Statement (AIS) and Form 26AS. Using TaxBuddy simplifies this process, as the platform auto-imports and verifies share transaction details, computes accurate gains, and ensures compliance with the reporting format mandated by the CBDT.
Link Between Section 112A and Bank Account Declarations
Banks and financial institutions report high-value transactions, including investments and redemptions, to the Income Tax Department. These reports form part of AIS and are linked to capital gains reporting under Section 112A. Failure to declare these transactions correctly can trigger system-generated notices. Taxpayers should cross-verify all declared sales or redemptions with their bank records to ensure alignment with AIS data before filing.
Recent Updates and Notifications from Budget 2024–25
The Budget 2024–25 introduced key modifications to enhance investor confidence. The exemption limit under Section 112A was increased from ₹1 lakh to ₹1.25 lakh, and clarifications were issued regarding reporting under Schedule 112A for NRIs. Additionally, the CBDT streamlined e-verification of capital gains data to reduce mismatches between broker statements and ITR filings. These updates make compliance smoother while preventing underreporting of market-linked gains.
Difference Between Section 112A and Section 111A
Section 111A applies to short-term capital gains (STCG) from equity shares or equity-oriented funds sold within 12 months and taxed at 15%. Section 112A, in contrast, covers long-term gains (held for over 12 months) taxed at 10% beyond ₹1.25 lakh. While both require STT payment for eligibility, Section 111A allows for quicker taxation on short-term profits, whereas Section 112A rewards longer holding periods with lower tax rates. Investors should evaluate their holding period and gain type before filing returns to ensure correct classification.
Impact of Section 112A on Investment Planning
Section 112A significantly influences investment strategies, especially for long-term equity investors. By taxing gains above ₹1.25 lakh at a flat 10%, it motivates taxpayers to stay invested for longer durations and manage redemptions strategically. Tax planning can include offsetting capital losses, spreading redemptions across years, and timing sales post-threshold to optimize tax liability. Proper record-keeping and advisory guidance from experts or digital platforms like TaxBuddy can help maximize post-tax returns.
Role of TaxBuddy in Simplifying LTCG Filing and Compliance
TaxBuddy plays a crucial role in simplifying the long-term capital gains (LTCG) filing and compliance process for individual taxpayers and investors. The platform automates the computation of capital gains by accurately fetching, verifying, and classifying data from multiple sources, including broker statements, Annual Information Statements (AIS), and Form 26AS. This automation eliminates the need for manual calculations, reducing the chances of human error that often lead to tax notices or mismatches during assessment.
By integrating directly with financial data, TaxBuddy ensures that every LTCG entry is cross-verified with the Income Tax Department’s records, offering a transparent and error-free filing experience. The system automatically identifies applicable exemptions under Section 112A and other relevant provisions, such as gains up to ₹1 lakh being exempt from tax, and applies the correct tax rate for listed equity shares and equity-oriented mutual funds.
Additionally, TaxBuddy simplifies the categorization of transactions—whether they are short-term or long-term—and accurately differentiates between capital gains and business income based on the frequency and nature of trades. This ensures the taxpayer’s return is filed in the correct form, such as ITR-2 or ITR-3, depending on their profile.
For individuals who may not be familiar with complex LTCG rules, TaxBuddy offers expert-assisted support to review the computations and ensure compliance with reporting requirements under Section 112A and other related provisions. The platform also provides personalized tax planning insights, helping investors optimize their tax liability by utilizing available exemptions, loss adjustments, and carry-forward provisions effectively.
Overall, TaxBuddy bridges the gap between investment activity and accurate tax filing by combining automation, data validation, and professional review. This integrated approach not only saves time but also enhances accuracy, enabling taxpayers to file their returns confidently while maintaining complete compliance with the latest income tax regulations.
Conclusion
Section 112A simplifies the taxation of long-term equity investments while ensuring fair revenue contribution. With the revised exemption threshold of ₹1.25 lakh and user-friendly digital compliance options, it encourages disciplined investing and accurate reporting. Investors should maintain detailed transaction records and use verified platforms like TaxBuddy for seamless tax computation and filing.
For anyone looking for assistance in tax filing, it is highly recommended to download the TaxBuddy mobile app for a simplified, secure, and hassle-free experience.
FAQs
Q1. What is Section 112A of the Income Tax Act? Section 112A deals with the taxation of long-term capital gains (LTCG) arising from the sale of listed equity shares, equity-oriented mutual funds, and units of business trusts where Securities Transaction Tax (STT) has been paid. It was introduced in the Union Budget 2018 to reintroduce LTCG tax on equities while offering a small exemption threshold for investors.
Q2. What is the current exemption limit under Section 112A? As per Budget 2025, taxpayers enjoy an exemption on LTCG up to ₹1.25 lakh in a financial year. This means that gains up to this limit from the sale of eligible equity instruments are fully tax-free. Any gains exceeding ₹1.25 lakh are taxed at a flat rate of 10% without indexation benefits.
Q3. What is the tax rate applicable under Section 112A? Long-term capital gains exceeding ₹1.25 lakh are taxed at a flat rate of 10%. No indexation benefit or rebate under Section 87A is available for such gains. The tax rate remains consistent across income levels, but surcharge and cess are added as applicable based on the taxpayer’s total income.
Q4. Is Section 112A applicable to NRIs? Yes, NRIs are also eligible for taxation under Section 112A if they earn LTCG from investments in Indian listed equities or mutual funds where STT is paid. However, NRIs must also comply with Double Taxation Avoidance Agreement (DTAA) provisions, which may influence the final tax rate or allow relief from double taxation.
Q5. What is the grandfathering rule under Section 112A? To protect gains made before the introduction of LTCG tax on equities, the grandfathering rule applies. For securities purchased before February 1, 2018, the cost of acquisition is determined using the fair market value as of January 31, 2018. This ensures that gains earned up to that date remain tax-exempt, and only subsequent appreciation is taxed.
Q6. Can basic exemption limits be adjusted against LTCG under Section 112A? Resident individuals and Hindu Undivided Families (HUFs) can adjust their unutilized basic exemption limit against LTCG. For instance, if a taxpayer’s total income excluding LTCG is below the basic exemption threshold, the remaining portion can be used to reduce taxable LTCG. Non-residents, however, are not entitled to this adjustment.
Q7. How do I report LTCG under Section 112A in my ITR? Long-term capital gains under Section 112A must be reported in Schedule 112A of the Income Tax Return form. Taxpayers must provide detailed transaction-level information such as ISIN, acquisition cost, sale value, and date of purchase and sale. The ITR form automatically computes taxable LTCG based on the exemption threshold and applicable rates.
Q8. Can losses be set off against gains under Section 112A? Yes, long-term capital losses from the sale of listed shares or equity-oriented funds can be set off against other long-term capital gains. If the losses exceed gains in the same year, they can be carried forward for up to eight assessment years, provided the return is filed within the due date. These losses cannot be adjusted against short-term capital gains or other income sources.
Q9. Does the new tax regime allow benefits under Section 112A? Yes, the 10% LTCG tax under Section 112A applies even under the new tax regime. However, unlike other deductions that are disallowed under the new regime, this tax rate and exemption threshold remain unchanged for both old and new tax regimes.
Q10. How does Section 112A differ from Section 111A? While both sections deal with equity-related capital gains, Section 111A applies to short-term capital gains (STCG) from equity instruments held for less than 12 months and taxed at 15%. Section 112A, on the other hand, applies to long-term gains (holding period of 12 months or more) taxed at 10%. This distinction ensures differential treatment for short-term trading and long-term investing.
Q11. Are mutual fund redemptions covered under Section 112A? Yes, redemptions or sales of equity-oriented mutual funds held for more than 12 months are covered under Section 112A. To qualify, the fund must invest at least 65% of its corpus in equity shares of domestic companies, and the transaction must have attracted STT both at the time of purchase and sale.
Q12. How can TaxBuddy assist with Section 112A compliance? TaxBuddy simplifies the process of reporting capital gains under Section 112A by automating data entry from broker statements and mutual fund reports. It accurately computes grandfathered cost values, applies exemptions, and ensures all details are reflected correctly in Schedule 112A. The platform minimizes human error, reduces the risk of mismatches in AIS or 26AS, and provides expert verification for precise and compliant filing.
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