Section 112: Tax on Long Term Capital Gain

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Sakshi Shah

Capital Gains
LTCG
Section 112
Unlisted Shares
Last updated on February 27th, 2024

Any income or loss arising from the sale of a capital asset is a capital gain. Based on the capital asset’s nature, the income tax department has defined the provisions for capital gains tax. Capital Gain arising on the sale of a long term capital asset is a Long Term Capital Gain. As per the Income Tax Act, provisions for tax on LTCG are determined under Section 112 and Section 112A. Section 112 of the Income Tax Act is the provision for the taxation of capital gains on long term capital assets other than those covered under Section 112A of Income Tax Act.

What is Section 112 of the Income Tax Act?

Section 112 is the income tax provision for tax on long term capital assets. It applies to all taxpayers such as individuals, HUFs, partnership firms, companies, residents, non-residents, foreign companies, etc. This section covers capital gains arising from the sale of all long-term capital assets. Long Term Capital Asset covers the following assets:

Section 112 does not apply to the capital gains on the sale of the following long-term capital assets to which Section 112A applies:

Income Tax on LTCG under Section 112 of the Income Tax Act

The income tax rate applicable to different capital assets is based on the nature of the asset and the period of holding. Below are the applicable tax rates for LTCG under Section 112.

Asset TypeHoldingTax Rate on LTCG
Listed Securities (other than unit)12 months10% without indexation
Zero-Coupon Bonds12 monthsLower of 10% without indexation or 20% with indexation
Unit of Unit Trust of India12 months20% with indexation
Unlisted Securities (Transfered by Non resident/ Foreign Company)12 months10% without indexation
Unlisted Securities24 months20% with indexation
Immovable Property24 months20% with indexation
Any other asset36 months20% with indexation
As per the Budget 2023, if you are purchasing any Debt MF after 1st April 2023 it is going to be taxed at individual slab rates and are considered as Short term Capital Gain.
Tip
As per the Budget 2023, if you are purchasing any Debt MF after 1st April 2023 it is going to be taxed at individual slab rates and are considered as Short term Capital Gain.

Adjustment of LTCG u/s 112 against Basic Exemption Limit

Taxpayers holding the status of Resident can benefit from adjusting the special rate income against the basic exemption limit to reduce taxes. Thus, if your total taxable income is less than the basic exemption limit, you can adjust your special rate income such as LTCG u/s 112, STCG u/s 111ALTCG u/s 112A, etc. against the shortfall in the basic exemption limit and pay tax on the remaining income only.

LTCG u/s 112 – Reporting in Schedule CG of ITR

The ITR Form under which the taxpayer needs to report income from capital gains includes ITR-2 and ITR-3. The taxpayer must report the following details for LTCG under Schedule CG of the ITR:

Set Off & Carry Forward LTCL u/s 112 of the Income Tax Act

When a taxpayer sells a capital asset at a loss after holding it for a period longer than the specified holding period under Section 112, it results in a Long-Term Capital Loss (LTCL). The taxpayer can offset this LTCL against LTCG from another capital asset. As per the income tax rules for set off and carry forward of losses, the taxpayer can set off LTCL against LTCG only in the current year. The taxpayer can carry forward the remaining loss for 8 years and set off against future LTCG only.

Exemption from LTCG Tax under Section 112

Taxpayers with long-term capital gain income from the sale of a specified asset under Section 112, such as listed securities on which STT is not paid, zero-coupon bonds, immovable property, unlisted securities, etc., can claim the following capital gain exemptions:

A taxpayer can claim the exemption by reinvesting the proceeds from the sale into a specified capital asset. Such an exemption would lower the capital gains and save taxes on the same. However, the taxpayer must hold the new asset for the specified period as per the relevant section. Further, if they sell the asset before the specified period, they must report it as an income in the relevant financial year and pay tax at the applicable rate.

The taxpayer has the option to open an account under the Capital Gains Account Scheme and park the sale proceeds in it till the time they invest in the specified asset to claim the Capital Gains exemption.

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Section 112 v/s 112A v/s 111A

FAQs

What is the difference between Section 112 and Section 112A of the Income Tax Act?

Section 112A is the provision for tax on LTCG on equity shares, equity mutual funds, and units of business trust on which STT is paid and listed on a recognized stock exchange in India. Section 112 is the provision for tax on LTCG for all assets except those covered under Section 112A.
The tax rate under Section 112A is 10% over INR 1 lac. The tax rate under Section 112 is based on the nature of the capital asset.

Can I claim Chapter VI-A deductions from Section 80C to 80U from LTCG u/s 112?

The Income Tax Act does not allow claiming deduction from Section 80C to 80U against LTCG under Section 112. However, the taxpayer can claim Chapter VI-A deductions on capital gains taxable at slab rates.

How can I save capital gain tax on the sale of a long term capital asset?

One can save capital gains tax on the sale of a long-term capital asset under Section 112 by claiming exemption from Section 54 or Section 54GB, depending on the nature of the capital asset. Further, you can save tax by setting off STCL or LTCL on the sale of any other capital asset against such income.

Can non-residents avail the basic exemption limit for long-term capital gains?

No, If non-residents generate taxable income from capital gains at a special rate, it cannot be offset against the basic exemption limit.

What will be the tax liability in case of the sale of Jewellery?

If you sell the jewelry after holding it for more than 36 months then it will be taxable at 20% along with the indexation benefit.

Got Questions? Ask Away!

  1. Hi @FalconZex

    1. Yes you are right the tax payable shall be 10,000 INR
    2. Rebate is applicable on total tax liability Section 87A does not exclude any income specifically.
    3. In such a case no rebate shall be available. The tax rate shall be as under:
    • On business income of 2 lakhs INR: 5%

    • On STCG of 2 lakhs INR: 15%

    You can also refer to our Income Tax Calculator

  2. I have income Short Term and Long term Capital gains and “Income from other sources” (Bank interest and Dividend). Also, I have investments in 80C, 80D, 80CCD.
    Are the investments in 80C, 80D, 80CCD considered for tax deduction?
    For example if income from other source is 1 lac and 80C investment is 1lac, will this 1 lac be exempt?
    STCG is 3.5lac, so 15% will be applicable on 1 lac. as 2.5 lacs is exempt.
    so i pay tax only 15% of 1 lac which is Rs.15000.
    please assist

  3. Hey @Yasmin_Menon

    Your are absolutely correct.

    Deductions, if any, will be reduced from your Income taxable at slab rates.
    The un-exhausted part of the basic exemption limit of 2.5 lakhs will be reduced from you Capital Gains.

    So, in the above case you’ll have to pay 15% tax on 1 lakh.

    However, if your taxable income after deductions is upto 5 lakhs, you’re eligible for rebate (12.5k) under section 87A.

    Hope this helps. :slight_smile:

  4. Just to reconfirm,
    income from other source (FD Interest and dividend) is 1 lac and 80C investment is 1lac, will this 1 lac be exempt and will not be calculated under taxable income?

  5. Yes, this 1 lac will not be taxable after deductions.

  6. Hey @Yasmin_Menon

    Deductions under Chapter VI-A can be claimed against taxable incomes. Based on your data, here is a calculation:

    Gross Total Income = 1 lac (IFOS) + 3.5 lac (STCG) = 4.5 lac
    Deduction 80C = 1 lac
    Total Income = 3.5 lac
    Special Rate Income = 3.5 lac
    Adjusted against basic exemption limit = 2.5 lac
    Taxable Special Rate Income (STCG) = 1 lac
    Tax on STCG = 15% of 1 lac = 15,000
    Rebate u/s 87A = 12,500
    Net Tax Liability = 2,500
    Cess = 4% of 2,500 = 100
    Total Tax Liability = 2,600

  7. Hey @click2vikash

    Here’s how you’ll be taxed under the Old Regime:

    Total Income = 11 lacs
    Income Taxable at Slab rates = 10 lacs
    Income Taxable at Specified rates = 1 lakh

    Tax on Slab Rate Income = 1,12,500
    Tax on STCG = 15,000

    Total Income Tax = 1,27,500
    HEC = 5100
    Total Tax Liability = 1,32,600

    Hope this helps :slight_smile:

  8. I bought shares worth INR 70,000 in 2017 which are now worth around INR 1,80,000. It is long term capital gains, how much tax do I have to pay?

  9. To differentiate capital gains into long term and short term the period is 36 months and 12 months - which one to consider?

  10. Hey @Tanmay_mehta,

    In Budget 2018, the grandfathering rule was announced u/s 112A which implies that - long term capital gains above INR 1 Lakh will be taxed at 10% after 1st Feb 2018.
    Therefore to calculate LTCG:

    • Take the equity value as on 31st Jan 2018 to be X
    • so LTCG = Sales price - value as on 31st Jan 2018
    • LTCG = 1,80,000 - X

    Any tax on LTCG will be 10% above INR 1 Lakh

    • LTCG below INR 1 Lakh is fully exempt
    • LTCG above INR 1 Lakh will be taxable at 10% for the amount above INR 1 Lakh only.

    Hope this helps!

    Refer to our learn article on LTCG on sale of Equity Shares and Equity Mutual funds

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