Section 112A provides for long-term capital gains tax on the sale of listed equity shares, equity-oriented mutual funds and business trust. The rate of long-term capital gains tax on these listed securities is 10% for gains exceeding the threshold of Rs 1 lakh.
The ITR forms contain schedule 112A to fill scrip wise details of these listed securities sold during a financial year. A taxpayer having long-term capital gains under the grandfathering provisions of section 112A should mandatorily fill the details in schedule 112A.
Latest Update:
CBDT has issued a circular on 9th Sep 21 extending the timelines for certain direct tax compliances for AY 2021-22.
Section 112A was inserted by the Finance Act 2018 to tax long-term capital gains from the sale of listed equity shares, units of equity-oriented mutual funds and units of business trust. Schedule 112A brought to tax gains that were earlier exempt until FY 2017-18 (AY 2018-19). Earlier, section 10(38) allowed a capital gains exemption from the sale of listed equity shares, units of mutual fund and business trust.
The conditions to tax capital gains under section 112A are:
The tax under Section 112A is only on long-term capital gains. The period of holding should be more than one year to qualify for taxation under section 112A. The tax rate is 10% above a threshold exemption of Rs 1 lakh. This means the long-term capital gains covered under section 112A are not taxable up to Rs 1 lakh per financial year. The gains exceeding Rs 1 lakh are liable to tax at 10% plus education cess and applicable surcharge.
For example, if a taxpayer has annual (net) long-term capital gain under section 112A of Rs. 1,50,000, then the tax of 10% under section 112A is on Rs. 50,000 (Rs. 1,50,000 – Rs. 1,00,00).
A resident individual or HUF whose total income after reducing the long-term capital gains is below the basic exemption limit, and then the long-term capital gains stand reduced by such shortfall.
For example, we consider a taxpayer’s total income is Rs 4,00,000 and (net) long-term capital gains under section 112A is Rs 2,00,000. Here, the balance income after reducing capital gains is Rs 2 lakh which is below the basic exemption limit.
The amount by which the reduced total income falls short of basic exemption limit is Rs. 50,000 (Rs 2,50,000 – Rs 2,00,000). The taxable long-term capital gains will be Rs 1,50,000 (Rs 2,00,000 – Rs 50,000).
The loss if any upon the sale of long-term listed equity shares or units mentioned above, is a long-term capital loss. You can set off the loss against long-term capital gain only. In case of losses from a few securities and gains from other securities, you can set off the losses from the gains. The net gains only get taxed and only if the net gains exceed Rs 1,00,000.
See illustration under point no. 5 below.
You can carry forward the long-term capital loss which you cannot set off for a period of eight years succeeding the assessment year in which you incur the loss.
The Finance Act, 2018 introduced the grandfathering provisions to exempt long-term capital gains earned until 31 January 2018. In the case of specified securities bought before 1 February 2018, for calculating the cost of acquisition, we first take the lower fair market value as of 31 January 2018 and the sale consideration. Then, we compare the result with the purchase price and take the higher of the two. An example of capital gains calculation under section 112A:
| A | B | C | D | E | F |
| Sale price | Cost | FMV | Lower of A and C | Cost of acquisition – Higher of B and D | Capital gain |
| 300,000 | 50,000 | 150,000 | 150,000 | 150,000 | 150,000 |
| 400,000 | 100,000 | 200,000 | 200,000 | 200,000 | 200,000 |
| 300,000 | 75,000 | 150,000 | 150,000 | 150,000 | 150,000 |
| 100,000 | 120,000 | 150,000 | 100,000 | 120,000 | (20,000) |
| 100,000 | 150,000 | 180,000 | 100,000 | 150,000 | (50,000) |
| 100,000 | 170,000 | 160,000 | 100,000 | 170,000 | (70,000) |
| 1,300,000 | 665,000 | 990,000 | 800,000 | 940,000 | 360,000 |
In the given illustration, a taxpayer can set off losses from the gains and arrive at the long-term capital gain taxable using the grandfathering mechanism is Rs 3,60,000. The taxpayer needs to pay tax only on the gains exceeding Rs 1,00,000, which is Rs 2,60,000.
Fair Market Value:
The income tax returns for AY 2020-21 contain Schedule 112A to enable scrip-wise reporting of long-term capital gains where grandfathering provisions are applicable. Schedule 112A requires data such as ISIN code, name of the scrip, number of units or shares sold, sale price, purchase cost and FMV as of 31 January 2018. The details are necessary to arrive at the correct amount of long-term capital gains where the grandfathering provisions are applicable.