The period of investments determines the taxation of capital gains. The Income Tax Act broadly classifies investment gains into long-term and short-term capital gains. It divides the taxation of long-term capital gains under two provisions: Section 112 and Section 112A.
- Budget 2024 Update
- What is Section 112 of the Income Tax Act?
- Income Tax on LTCG under Section 112 of the Income Tax Act
- Adjustment of LTCG u/s 112 against Basic Exemption Limit
- LTCG u/s 112 – Reporting in Schedule CG of ITR
- Set Off & Carry Forward LTCL u/s 112 of the Income Tax Act
- Exemption from LTCG Tax under Section 112
- Section 112 v/s 112A v/s 111A
- FAQs
Budget 2024 Update
The Budget 2024 proposes several changes effective from FY 2024-25:
- New Holding Periods: There will now be two holding periods for asset classification: 12 months and 24 months. The government has removed the 36-month holding period.
- Listed Securities: All listed securities with a holding period over 12 months will be treated as long-term.
- Short-Term Capital Gains Tax: The short-term capital gains tax on listed equity shares, equity-oriented fund units, and business trust units will rise from 15% to 20%. Other short-term assets will continue to be taxed at the applicable income tax slab rates.
These changes aim to simplify asset classification and increase short-term capital gains taxes.
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:
- Securities (other than units) listed on a recognized stock exchange in India
- Unit of the unit trust of India
- Zero-coupon bond
- Securities not listed on a recognized stock exchange in India
- Immovable property being land, building, or both
- Any other capital asset
Section 112 does not apply to the capital gains on the sale of the following long-term capital assets to which Section 112A applies:
- Listed equity shares where STT is paid on acquisition or transfer
- Units of equity-oriented mutual funds where STT is paid on transfer
- Units of business trust where STT is paid on transfer
Income Tax on LTCG under Section 112 of the Income Tax Act
The tax rate for capital assets varies based on the asset type and holding period. Below are the applicable tax rates for LTCG under Section 112. From 23rd July 2024, the revised rates from Budget 2024 will apply to capital gains.
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 111A, LTCG 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:
- Full value of consideration i.e. sales value
- Deductions under Section 48
- Indexed Cost of acquisition i.e. purchase value
- Indexed Cost of improvement
- Expenditure wholly and exclusively in connection with transfer i.e. transfer expenses
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:
- Section 54EE – Exemption on sale of any long-term capital asset on investment in units of a specified fund.
- Section 54F – Exemption on sale of any long-term capital asset (except house) on investment in residential house property.
- The taxpayer can claim Capital Gain Exemption on the sale of immovable property under Section 54, Section 54EC, Section 54EE, Section 54GB depending upon the nature of the capital asset
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.
Section 112 v/s 112A v/s 111A
- Section 112 of the Income Tax Act applies to all long term capital assets defined under Section 2(29AA) of the Income Tax Act. Different tax rates are defined for long term capital gains on these assets except the ones covered under Section 112A.
- Section 112A of Income Tax Act is the overriding section of Section 112. Thus, it applies to long term capital gains on the sale of specified long term capital assets i.e. equity shares, equity mutual funds, and units of business trust on which STT is paid and are listed on a recognized stock exchange in India.
- Section 111A of Income Tax Act applies to short term capital gains on the sale of equity shares, equity mutual funds, and units of business trust on which STT is paid and are listed on a recognized stock exchange in India.
FAQs
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.
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.
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.
No, If non-residents generate taxable income from capital gains at a special rate, it cannot be offset against the basic exemption limit.
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.
Hi @FalconZex
On business income of 2 lakhs INR: 5%
On STCG of 2 lakhs INR: 15%
You can also refer to our Income Tax Calculator
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
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.
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?
Yes, this 1 lac will not be taxable after deductions.
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
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
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?
To differentiate capital gains into long term and short term the period is 36 months and 12 months - which one to consider?
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:
Any tax on LTCG will be 10% above INR 1 Lakh
Hope this helps!
Refer to our learn article on LTCG on sale of Equity Shares and Equity Mutual funds