Section 112A of Income Tax Act: LTCG on Shares & Mutual Funds (Updated Budget 2024)
- Rashmita Choudhary
- Jul 24
- 17 min read
Many people wonder about taxes when they make profits from selling shares or mutual funds. Understanding Section 112A is very important for your tax filing if you had such gains. Section 112A of the Income Tax Act specifically deals with the tax on Long-Term Capital Gains (LTCG) that come from selling listed equity shares. It also covers gains from equity mutual funds and units of business trusts. The rules outline a particular tax rate and an exemption amount, and it's good to know the latest changes from Budget 2024. This guide makes Section 112A simple to understand, explains the newest updates, shows how to calculate your tax, and helps you report it correctly. You will learn about key aspects of section 112a income tax, how to do the calculations, the grandfathering rule for older investments, the impact of budget 2024 section 112a, what it means for NRIs, and how to report these gains.
Table of content
What is Section 112A of the Income Tax Act?
Section 112A of the Income Tax Act was introduced by the Finance Act, 2018. Its main purpose was to bring certain long-term capital gains into the tax net. Before this section, such gains were often exempt from tax under Section 10(38) of the Income Tax Act. This section 112a explained simply, applies to profits you make from selling specific long-term investments.
The gains that fall under what is section 112a include those from the sale of:
Listed equity shares
Units of an equity-oriented mutual fund
Units of a business trust
Before April 1, 2018, if you sold these assets after holding them for the long term and paid Securities Transaction Tax (STT), the profit was usually tax-free due to Section 10(38). The 112a income tax act changed this by removing that exemption and introducing a new way to tax these gains, though it still offers some benefits compared to other capital gains. This marked a shift from the old regime (pre-2018) to the new regime (post-April 1, 2018) for taxing these long-term capital asset sales.
Key Changes to Section 112A in Union Budget 2024 (FY 2024-25 / July 23, 2024)
This section on section 112a budget 2024 outlines the very latest rules you need to know. The Union Budget 2024 has introduced significant updates to Section 112A concerning the tax rate and exemption limit for long-term capital gains. Taxpayers should pay close attention to these section 112a amendment details. Information is based on official announcements.
The 112a new tax rate for long-term capital gains under Section 112A has been increased. The new rate is 12.5% (plus applicable surcharge and cess). This is up from the previous rate of 10%. This increased tax rate of 12.5% applies to transfers of specified assets made on or after July 23, 2024.
The 112a exemption limit 2024 has also been increased. The new exemption limit for such LTCG is Rs. 1.25 lakh per financial year. This is an increase from the earlier limit of Rs. 1 lakh. This enhanced exemption limit of Rs. 1.25 lakh is applicable for the financial year 2024-25 (which corresponds to Assessment Year 2025-26) and onwards.
What this means is that if your total long-term capital gains under Section 112A in a financial year are up to Rs. 1.25 lakh, they are exempt from tax. The tax of 12.5% applies only to the amount of gain that exceeds Rs. 1.25 lakh. For example, if you have a gain of Rs. 1,50,000, then Rs. 1,25,000 is exempt, and tax is calculated on the remaining Rs. 25,000. It's also important to remember that the benefit of indexation (which allows you to adjust the purchase price for inflation) is not available for calculating gains taxable under Section 112A. These ltcg tax changes 2024 are crucial for accurate tax computation.
Here’s a table summarizing the old versus new provisions:
Applicability: When Does Section 112A Apply?
For Section 112A to apply to your capital gains, certain conditions must all be met. These relate to the type of asset sold, how long it was held, and the payment of Securities Transaction Tax (STT).
Type of Asset
Equity shares and section 112a rules are quite specific about the assets. Section 112A applies to gains from the transfer of:
Listed equity shares.
Units of an equity-oriented fund. An equity oriented mutual fund 112a is generally one that invests more than 65% of its corpus in domestic equity shares.
Units of a business trust.
Nature of Gain (Long-Term)
The holding period for 112a is a key factor. The gain must be a "long-term capital gain." This means the asset must qualify as a "long-term capital asset." For the specific assets covered by Section 112A (listed equity shares, equity-oriented fund units, business trust units), the holding period to be considered long-term is more than 12 months. So, you must have held the investment for over a year before selling it.
Securities Transaction Tax (STT) Condition
The stt and section 112a condition is very important for the concessional tax rate to apply. Generally, Securities Transaction Tax (STT) must have been paid on the transactions.
For equity shares: STT should have been paid at the time of acquisition (purchase) AND at the time of transfer (sale).
For units of an equity-oriented fund or a business trust: STT should have been paid at the time of transfer (sale).
There are certain exceptions where STT on acquisition of equity shares might not have been paid, but you could still be eligible for Section 112A benefits. The Central Board of Direct Taxes (CBDT) has provided clarifications and notifications for situations like shares acquired in an Initial Public Offering (IPO), Follow-on Public Offer (FPO), bonus issues, or rights issues, where STT might not have been applicable on acquisition. It's one of the key conditions for section 112a.
Transfer through a Recognised Stock Exchange (Generally)
Transactions involving these assets usually need to take place on a recognized stock exchange in India for Section 112A to apply. However, there's an important point regarding the IFSC section 112a. STT may not be required for transactions undertaken on a recognized stock exchange located in an International Financial Services Centre (IFSC), where the consideration is paid or payable in foreign currency. In such specific IFSC cases, the benefit of Section 112A might still be available even without STT payment, subject to prescribed conditions.
How to Calculate Long-Term Capital Gains (LTCG) and Tax Under Section 112A
This section 112a tax calculation involves a clear, step-by-step process to find out your Long-Term Capital Gains (LTCG) and the final tax you need to pay, using the new rules from Budget 2024.
Step 1: Calculate Full Value of Consideration (Sale Price)
The Full Value of Consideration is the first thing to determine. This is simply the total amount of money you received from selling your assets (like shares or mutual fund units). You get this by multiplying the number of shares/units sold by the sale price per share/unit.
Step 2: Determine Cost of Acquisition (COA)
The Cost of Acquisition (COA) is what you originally paid for the assets.
If you purchased the assets before February 1, 2018: You must use the Grandfathered COA. You should refer to the detailed explanation in "The Grandfathering Clause" section above to calculate this.
If you purchased the assets on or after February 1, 2018: Your COA is the actual purchase cost of the assets.
For bonus shares allotted on or after February 1, 2018, the COA is usually taken as Nil. If bonus shares were allotted before February 1, 2018, and the original shares were also held before this date, the FMV as of Jan 31, 2018, is used for grandfathering. For rights issues, the COA is the amount you paid to acquire those rights shares.
Step 3: Deduct Expenses on Transfer
Next, you deduct Expenses on Transfer. These are expenses that are directly related to the sale of your assets. Examples include brokerage fees or commission paid for the sale transaction. It's important to note that Securities Transaction Tax (STT) is generally not allowed as a deductible expense when calculating capital gains under Section 112A, as payment of STT is a condition for availing the concessional tax rate itself. Always verify the latest rules on this from official sources.
Step 4: Calculate Net Long-Term Capital Gain
Now, you calculate the Net Long-Term Capital Gain. The formula is straightforward: Net LTCG = Full Value of Consideration – Cost of Acquisition – Expenses on Transfer. This gives you the total profit from your long-term investment.
Step 5: Apply Exemption Limit (New Limit: Rs. 1.25 Lakh)
The section 112a exemption calculation comes next. From your Net LTCG (if it's a positive amount), you can deduct the exemption limit of Rs. 1.25 lakh for the financial year 2024-25 onwards. If your total Net LTCG under Section 112A for the year is Rs. 1.25 lakh or less, your taxable LTCG under this section becomes Nil, and you don’t pay any tax on it.
Step 6: Calculate Tax Payable (New Rate: 12.5%)
Finally, you perform the section 112a tax calculation on the remaining amount. The tax payable is calculated at 12.5% of the (Net LTCG – Rs. 1.25 Lakh), for transfers made on or after July 23, 2024. Remember that applicable surcharge (if your total income is very high) and health and education cess (currently 4%) will also be added to this tax amount to arrive at the final tax liability. The ltcg tax rate 12.5 is a key part of this step.
LTCG and Tax Calculation
Let's see some examples of how LTCG and tax are calculated using the post-Budget 2024 rules.
Example 1: With Grandfathering, Gain Exceeds Rs. 1.25 Lakh (Sale on August 10, 2024)
Shares purchased: May 15, 2017
Actual Purchase Price: Rs. 2,00,000
FMV on Jan 31, 2018: Rs. 2,50,000
Sale Price (Full Value of Consideration): Rs. 4,50,000
Expenses on Transfer (Brokerage): Rs. 2,000
COA Calculation (Grandfathering):
Lower of (FMV on Jan 31, 2018; Sale Price) = Lower of (Rs. 2,50,000; Rs. 4,50,000) = Rs. 2,50,000
Higher of (Result above; Actual Purchase Price) = Higher of (Rs. 2,50,000; Rs. 2,00,000) = Rs. 2,50,000 (This is the COA)
Net LTCG Calculation:
Net LTCG = Rs. 4,50,000 (Sale Price) - Rs. 2,50,000 (COA) - Rs. 2,000 (Expenses) = Rs. 1,98,000
Apply Exemption:
Taxable LTCG = Rs. 1,98,000 - Rs. 1,25,000 (Exemption) = Rs. 73,000
Tax Calculation:
Tax = 12.5% of Rs. 73,000 = Rs. 9,125
Add Cess (e.g., 4% of Rs. 9,125 = Rs. 365)
Total Tax Payable = Rs. 9,125 + Rs. 365 = Rs. 9,490 (Surcharge ignored for simplicity)
Example 2: Without Grandfathering (Recent Purchase), Gain Exceeds Rs. 1.25 Lakh (Sale on September 5, 2024)
Shares purchased: March 10, 2023
Actual Purchase Price (COA): Rs. 3,00,000
Sale Price (Full Value of Consideration): Rs. 5,00,000
Expenses on Transfer (Brokerage): Rs. 3,000
COA: Rs. 3,00,000 (Since purchased after Feb 1, 2018)
Net LTCG Calculation:
Net LTCG = Rs. 5,00,000 - Rs. 3,00,000 - Rs. 3,000 = Rs. 1,97,000
Apply Exemption:
Taxable LTCG = Rs. 1,97,000 - Rs. 1,25,000 (Exemption) = Rs. 72,000
Tax Calculation:
Tax = 12.5% of Rs. 72,000 = Rs. 9,000
Add Cess (e.g., 4% of Rs. 9,000 = Rs. 360)
Total Tax Payable = Rs. 9,000 + Rs. 360 = Rs. 9,360 (Surcharge ignored)
Example 3: Gain is Below Rs. 1.25 Lakh (Sale on October 20, 2024)
Shares purchased: July 1, 2020
Actual Purchase Price (COA): Rs. 50,000
Sale Price (Full Value of Consideration): Rs. 1,50,000
Expenses on Transfer (Brokerage): Rs. 500
COA: Rs. 50,000
Net LTCG Calculation:
Net LTCG = Rs. 1,50,000 - Rs. 50,000 - Rs. 500 = Rs. 99,500
Apply Exemption:
Net LTCG (Rs. 99,500) is less than Exemption Limit (Rs. 1,25,000)
Tax Calculation:
Taxable LTCG = Nil
Total Tax Payable = Rs. 0
Special Scenarios under Section 112A
Section 112A has specific ways of handling common but slightly more complex situations like bonus shares, rights issues, and SIP investments. It's good to know how these are treated.
Bonus Shares
For bonus shares section 112a queries, the Cost of Acquisition (COA) and holding period are key.
COA for bonus shares allotted before February 1, 2018: If the original shares (on which bonus was given) were also acquired before February 1, 2018, the Fair Market Value (FMV) as on January 31, 2018, is typically considered the COA for these bonus shares when applying the grandfathering rule. If original shares were acquired after Jan 31, 2018, but bonus before this date (an unlikely scenario), specific advice would be needed.
COA for bonus shares allotted on or after February 1, 2018: The Cost of Acquisition for such bonus shares is taken as Nil.
Holding period: The holding period for bonus shares is calculated from the date of allotment of the bonus shares.
For example, if you got bonus shares on March 15, 2019, their cost is Nil. If you sell them on April 20, 2024 (held over 12 months), the entire sale proceeds (less expenses) would be LTCG. The ltcg on bonus shares needs careful calculation based on allotment dates.
Rights Issues
When considering rights issue section 112a, here's how things work:
Cost of rights shares: The Cost of Acquisition for rights shares is the amount you actually paid to the company to acquire them.
Holding period: The holding period for rights shares starts from the date of allotment of these rights shares.
Rights renunciation: If you don't subscribe to the rights shares yourself but instead sell/renounce your rights entitlement to someone else, the consideration received from such renunciation is usually treated as a short-term capital gain (if the right is held for a short period before renouncing). Whether this gain falls under Section 112A or other sections depends on the specifics and if STT is paid on such renunciation transaction. Typically, renunciation of rights is not a transaction on stock exchange and hence may not be covered by 112A, so it's best to get specific advice. The ltcg on rights shares themselves (if subscribed and then sold after 12 months) will follow normal 112A rules.
For example, if you paid Rs. 50 per share for rights shares allotted on June 10, 2022, and sell them on July 30, 2024, your COA is Rs. 50.
Systematic Investment Plans (SIPs) in Equity Mutual Funds
For sip section 112a calculations, each SIP installment is treated as a separate purchase of mutual fund units. This means:
Individual Calculation: The holding period and Cost of Acquisition (COA) are calculated individually for the units bought in each SIP installment.
FIFO Basis: When you redeem (sell) units, the First-In, First-Out (FIFO) method is typically applied. This means the units you bought first are considered to be sold first. This helps determine which units meet the long-term holding period criteria.
Grandfathering: The grandfathering rule (using FMV as on Jan 31, 2018) applies on a per-unit basis if those specific units were acquired through SIP installments before February 1, 2018.
Calculating ltcg on sip can seem a bit detailed because you have to track each batch of units. Broker statements often provide this detailed breakdown which is very helpful.
Section 112A for Non-Resident Indians (NRIs)
The applicability of section 112a for nri investors has sometimes been a point of discussion. It's important for Non-Resident Indians (NRIs) to understand how their long-term capital gains from Indian equities are taxed.
Several sources suggest that Section 112A of the Income Tax Act may not directly apply to NRIs for their LTCG on specified Indian securities. Instead, the taxation of such capital gains for NRIs is often governed by other specific sections, such as Section 115AD of the Income Tax Act, or potentially Section 115E for certain assets. Section 115AD provides special provisions for taxation of income of Foreign Institutional Investors (FIIs) and can also cover other non-residents investing in specified assets.
The tax rates and conditions under Section 115AD might differ from those under Section 112A. For instance, the concessional rates for FIIs under 115AD for LTCG on securities could be 10% (plus surcharge and cess) without any threshold exemption like the Rs 1.25 lakh available to residents under Section 112A.
Furthermore, the provisions of a Double Taxation Avoidance Agreement (DTAA) between India and the NRI's country of residence play a very significant role. A DTAA may provide specific rules for the taxation of capital gains, and its provisions can override the domestic tax laws of India if they are more beneficial to the taxpayer. NRIs should check the DTAA between India and their country of residence to understand where such gains will be taxed and at what rate.
Given the complexities and the interplay between domestic law (like section 115ad vs 112a) and DTAA provisions, it is highly advisable for NRIs to seek professional tax advice to determine their exact nri ltcg tax india liability on capital gains tax for nri on shares. The treatment can depend on their specific status, the nature of the investment, and the relevant DTAA. Some sources also mention Tax Deducted at Source (TDS) on such capital gains for non-residents.
Common Mistakes to Avoid with Section 112A
Taxpayers sometimes make mistakes section 112a calculations or reporting, which can lead to incorrect tax payments or notices from the tax department. Awareness of these common errors ltcg tax can help you avoid them.
Incorrectly calculating grandfathered Cost of Acquisition: This is a frequent error, especially getting the "lower of FMV/Sale Price" and "higher of that result/Actual Cost" steps wrong.
Forgetting the Rs. 1.25 lakh exemption or applying the old Rs. 1 lakh limit: With the Budget 2024 changes, using the new Rs. 1.25 lakh exemption for FY 2024-25 is crucial.
Using the old 10% tax rate instead of the new 12.5%: For transactions of specified assets made on or after July 23, 2024, the new 12.5% tax rate applies.
Errors in scrip-wise reporting in Schedule 112A: Missing details like ISIN codes, incorrect number of shares, or errors in sale/purchase prices are common.
Not verifying if STT conditions are met: Failure to meet STT requirements can make the gain taxable under different provisions, possibly at higher rates.
Trying to claim indexation benefit: Indexation is not allowed for gains under Section 112A.
Attempting to claim Chapter VI-A deductions (like 80C) against 112A gains: These deductions cannot reduce gains taxable under Section 112A.
Incorrectly setting off or carrying forward losses: Understanding the rules for setting off LTCL against LTCG and carrying it forward is important.
Taxpayer Checklist for Section 112A Compliance
This section 112a checklist can help ensure you cover all necessary steps for ltcg compliance.
[ ] Gather all broker statements for the financial year. These are your primary source of transaction data.
[ ] Identify all sales of listed equity shares, equity-oriented mutual fund units, and units of business trusts during the financial year.
[ ] Determine the holding period for each investment sold to correctly classify it as short-term or long-term (more than 12 months for 112A assets).
[ ] For any assets purchased before February 1, 2018, find the Fair Market Value (FMV) as on January 31, 2018. Broker statements usually provide this.
[ ] Calculate the Cost of Acquisition (COA) correctly for each scrip – use the actual cost for post-Jan 2018 purchases and the grandfathered COA for pre-Feb 2018 purchases.
[ ] Calculate the LTCG scrip-wise by deducting COA and any direct selling expenses from the sale consideration for each transaction.
[ ] Aggregate the total LTCG that falls under Section 112A for the financial year.
[ ] Apply the Rs. 1.25 lakh exemption to the total LTCG (for FY 2024-25 onwards).
[ ] Calculate tax at 12.5% on the balance LTCG (if any), for transfers made on or after July 23, 2024. Remember to apply the 10% rate for gains from transfers before this date in FY 2024-25, ensuring the overall Rs 1.25 lakh exemption is utilized correctly for the entire FY.
[ ] Ensure all required details are ready for Schedule 112A in your ITR, especially for scrips where grandfathering applies (ISIN, name, dates, prices, FMV).
[ ] Verify advance tax paid, if applicable on these gains, especially if the tax liability is significant.
Conclusion: Navigating LTCG Tax under Section 112A
Successfully understanding section 112a is key for anyone investing in the stock market. This section of the Income Tax Act specifically taxes Long-Term Capital Gains from listed equity shares, equity mutual funds, and business trusts. The Union Budget 2024 has brought important changes: the tax rate is now 12.5% (for transfers from July 23, 2024) on gains exceeding an increased exemption limit of Rs. 1.25 lakh (for FY 2024-25 onwards). The grandfathering clause continues to protect gains accrued up to January 31, 2018, which is a significant relief. Accurate scrip-wise reporting in Schedule 112A of your ITR is vital for compliance.
Tax laws can evolve. Therefore, staying updated with the latest rules and amendments is very important for all taxpayers. Proper planning and a clear understanding of provisions like Section 112A can help you manage your tax liability on investment gains much more effectively. These final thoughts ltcg aim to simplify your tax journey.
Need help with your LTCG calculations or ITR filing? Contact TaxBuddy's experts or Explore TaxBuddy's ITR filing services.
Frequently Asked Questions (FAQs) about Section 112A
Q: What is the current tax rate under Section 112A?
A: The tax rate under Section 112A is 12.5% on long-term capital gains exceeding Rs. 1.25 lakh in a financial year. This 12.5% rate applies to transfers of specified assets made on or after July 23, 2024. Gains up to Rs. 1.25 lakh per financial year (starting FY 2024-25) are exempt.
Q: Is indexation benefit available under Section 112A?
A: No, the benefit of indexation (adjusting cost for inflation) is not available for calculating LTCG taxable under Section 112A.
Q: How is the Cost of Acquisition calculated under the grandfathering clause?
A: For assets acquired before February 1, 2018, the Cost of Acquisition is the higher of: (a) your actual purchase cost, OR (b) the lower of the Fair Market Value (FMV) as on January 31, 2018, and your actual sale price. You can refer to the detailed explanation earlier in this article.
Q: Does Section 112A apply to unlisted shares?
A: No, Section 112A applies specifically to listed equity shares, units of equity-oriented mutual funds, and units of a business trust where STT is paid. LTCG from unlisted shares are generally taxed under Section 112 of the Income Tax Act.
Q: What if my total LTCG under Section 112A is less than Rs. 1.25 lakh in FY 2024-25?
A: If your total LTCG under Section 112A for the financial year 2024-25 is Rs. 1.25 lakh or less, then your taxable LTCG under this section is Nil, and you do not have to pay tax on it.
Q: Is STT (Securities Transaction Tax) deductible as an expense when calculating LTCG under 112A?
A: Generally, STT is not deductible as an expense when computing capital gains under Section 112A if the payment of STT is a condition for availing the concessional tax rate under this section. You should verify current rules, but typically it's not an allowable deduction here.
Q: Can I claim Section 80C deductions against LTCG taxed under Section 112A?
A: No, deductions under Chapter VI-A (like Section 80C, 80D, etc.) cannot be set off against long-term capital gains that are taxable under Section 112A.
Q: What is Schedule 112A in ITR?
A: Schedule 112A is a specific schedule in the Income Tax Return (ITR) form. It requires scrip-wise (individual share/MF transaction wise) reporting of long-term capital gains that are taxable under Section 112A, especially for grandfathered assets.
Q: Does Section 112A apply to NRIs?
A: Based on several interpretations, Section 112A may not directly apply to Non-Resident Indians (NRIs). Their LTCG from such assets are often governed by Section 115AD of the Income Tax Act or the provisions of the applicable Double Taxation Avoidance Agreement (DTAA). NRIs should seek professional advice.
Q: How are bonus shares acquired before Feb 1, 2018, treated under Section 112A?
A: If original shares (on which bonus was issued) were also held before Feb 1, 2018, the Fair Market Value (FMV) of the bonus shares as on January 31, 2018, is typically taken as their cost of acquisition for applying the grandfathering rule. If bonus shares were allotted on or after Feb 1, 2018, their cost is Nil.
Q: What happens if STT is not paid on an eligible transaction?
A: If the required Securities Transaction Tax (STT) is not paid on a transaction involving listed equity shares (on acquisition and sale) or equity fund units (on sale), then the concessional tax rate and exemption under Section 112A may not apply. The gains might then be taxed under other provisions, like Section 112, potentially at a different (possibly higher) tax rate and without the specific Rs. 1.25 lakh exemption.
Q: Can Long Term Capital Loss under Section 112A be set off?
A: Yes, a Long-Term Capital Loss (LTCL) arising from assets covered under Section 112A can be set off against Long-Term Capital Gains (LTCG) from any asset in the same year. Any unutilized LTCL can be carried forward for up to 8 assessment years and set off only against future LTCG.
Q: When did the new 12.5% tax rate for Section 112A become effective?
A: The new tax rate of 12.5% for LTCG under Section 112A is effective for transfers of specified assets made on or after July 23, 2024.
Q: What if I sell some shares before July 23, 2024, and some after, in the same financial year (FY 2024-25)?
A: For FY 2024-25, the Rs. 1.25 lakh exemption limit applies to your total LTCG under Section 112A for the entire year.
Gains from sales before July 23, 2024, would be taxed at the old rate of 10% on the portion of gains exceeding the overall Rs. 1.25 lakh annual exemption.
Gains from sales on or after July 23, 2024, would be taxed at the new rate of 12.5% on the portion of gains exceeding the overall Rs. 1.25 lakh annual exemption. The Rs. 1.25 lakh exemption is applied to the aggregate gains first. The tax rate (10% or 12.5%) then applies to the respective gains falling in different periods, on amounts over the total exemption. This requires careful calculation to ensure the exemption is utilized correctly against gains chronologically or as per utility provisions.
Q: Where can I find the FMV of my shares as on January 31, 2018?
A: For listed shares, the Fair Market Value (FMV) as on January 31, 2018, is generally the highest price quoted on the recognized stock exchange on that day. If the share didn't trade on Jan 31, 2018, the highest price on the immediately preceding trading day is used. Your stockbroker statements often provide this FMV data. Financial news portals and stock exchange websites might also have historical price data.
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