Section 112 of Income Tax Act : Capital Gain on Long Term Capital Assets

Any income or loss arising on the sale of a capital asset is a capital gain. Based on the nature of the capital asset and the nature of the capital gain, 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 Long Term Capital Gains are covered under Section 112 and Section 112A. Section 112 of Income Tax Act is the provision for 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 Income Tax Act?

Section 112 is the income tax provision for tax on long term capital assets. It applies to all taxpayers such as individual, HUF, partnership firm, company, resident, non-resident, foreign company, 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 unit) listed on a recognised stock exchange in India
  • Unit of the unit trust of India
  • zero-coupon bond
  • Securities not listed on a recognised stock exchange in India
  • Immovable property being land or 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 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 Type Period of Holding Tax Rate on LTCG
Listed Securities (other than unit) 12 months Lower of 10% without indexation or 20% with indexation
Zero-Coupon Bonds 12 months Lower of 10% without indexation or 20% with indexation
Unit of Unit Trust of India 12 months 20% with indexation
Unlisted Securities 24 months 20%
Immovable Property 24 months 20% with indexation
Any other asset 36 months 20%

Adjustment of LTCG u/s 112 against Basic Exemption Limit

Taxpayers holding the status of Resident as per the rules to determine the residential status can take benefit of 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:

  • 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
  • LTCG is automatically computed

Set Off & Carry Forward LTCL under Section 112 of Income Tax Act

The loss on sale of a capital asset as per Section 112 held for more than the period of holding is a Long Term Capital Loss. A taxpayer can set off LTCL from one capital asset 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 i.e. Long Term Capital Loss against Long Term Capital Gains 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

The taxpayer having 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 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. However, if he/she sells the asset before the specified time period, he/she must report it as an income in the relevant financial year and pay tax at the applicable rate.

The taxpayer has an 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 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 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 recognised stock exchange in India.
  • Section 111A of Income Tax Act applies to short term capital gains on sale of equity shares, equity mutual funds, and units of business trust on which STT is paid and are listed on a recognised stock exchange in India.

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 recognised 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% in excess of 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?

Capital gain tax on the sale of a long term capital asset under Section 112 can be saved either by claiming exemption from Section 54 to Section 54GB based 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.

Capital Gain Tax on Movable Property : Jewellery, Car, Painting

Income from the sale of a capital asset is treated as Capital Gains as per Income Tax. Based on the nature of the capital asset and the nature of the capital gain, the income tax department has defined the provisions for capital gains tax. Movable property such as jewellery, car, painting, work of art, etc has a period of holding of 36 months. Capital Gain Tax on movable property such as jewellery, car, painting, etc is taxed at slab rates in case of Short Term Capital Gain i.e. STCG, and at a rate of 20% with the benefit of indexation in case of Long Term Capital Gain i.e. LTCG.

Capital Gains on Sale of Jewellery, Car, Painting, etc

The Income Tax Department has laid out specified sections for taxation of capital assets such as Section 112A for LTCG on equity shares and Section 111A for STCG on equity shares. Let us understand the capital gains on other capital assets and their tax treatment. Other capital assets include the following:

  • Jewellery – ornaments made of gold, silver, platinum, precious stones, etc
  • Drawings & Paintings
  • Archaeological collections
  • Sculptures
  • Work of art
  • Motor Vehicle i.e. car, bus, motorcycle, truck, etc
  • Any other property held by a taxpayer

Any income or loss arising on the sale of any of the above-listed assets is treated as Capital Gains. Section 2(42A) of the Income Tax Act defines a Short Term Capital Asset and Section 2(29A) defines a Long Term Capital Asset. Based on this definition, the period of holding in the case of other capital assets such as jewellery, car, painting, etc is 36 months. Thus, if such capital asset is sold within 36 months of purchase, the profit or loss is STCG and if sold after 36 months, the profit or loss is LTCG.

Income Tax on Sale of Jewellery, Car, Painting, etc

Capital Gains on sale of movable property such as jewellery, car, painting, etc is taxable based on the nature of capital gain. Following is the tax treatment for capital gains on movable property:

Capital Gain
Description
Income Tax Rate
Long-Term Capital Gain Sold after 36 months from purchase 20% with Indexation u/s 112
Short-Term Capital Gain Sold within 36 months from purchase Slab Rates

Short Term Capital Gain on Sale of Movable Property at Slab Rates

If a movable property such as jewellery, car, painting, etc is sold within 36 months from its purchase, the profit or loss is a Short Term Capital Gain or Short Term Capital Loss. STCG on a movable property is not a special rate income and is taxable at slab rates.

Long Term Capital Gain on Sale of Movable Property under Section 112

If a movable property such as jewellery, car, painting, etc is sold after 36 months from its purchase, the profit or loss is a Long Term Capital Gain or Long Term Capital Loss. LTCG on a movable property is a special rate income taxable under Section 112 of the Income Tax Act.

Section 112 of the Income Tax Act is the provision for tax on long term capital gains. A resident individual or HUF is liable to pay tax at the rate of 20% with the benefit of indexation. Thus, long term capital gain tax on the sale of movable property such as jewellery, car, painting, etc is taxable at 20% with indexation.

Example

Mrs X, a resident in India, bought some jewellery in February 2019 for INR 15,00,000. He sold the same in March 2021 for INR 25,00,000. Calculate the tax liability.

To determine the nature of capital gain, the period of holding for jewellery is 36 months. Since Mrs X sold out the jewellery within 36 months of purchase, this will be treated as a short term capital gain. Below is the tax liability:

  Particulars Amount (INR)
  Full value of consideration or Sales consideration 25,00,000
Less Cost of Acquisition 15,00,000
  Short Term Capital Gains 10,00,000
  Tax Liability (slab rates) 1,12,500
Add Health & Education Cess (4%) 4,500
  Total Tax Liability 1,17,000

If in the above example, if she sold the jewellery in March 2022 i.e. after 36 months from purchase, this will be treated as a long term capital gain. Below is the tax liability:

  Particulars Amount (INR)
  Full value of consideration or Sales consideration 25,00,000
Less Indexed Cost of Acquisition (15,00,000 * 317/280) 16,98,214
  Long Term Capital Gains 8,01,786
  Tax Liability (20%) 1,60,357
Add Health & Education Cess (4%) 6,414
  Total Tax Liability 1,66,771

Adjustment of LTCG on movable property against Basic Exemption Limit

Taxpayers holding the status of Resident as per the rules to determine the residential status can take benefit of 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.

In the above example, if Mrs X had only LTCG income and no other income, the calculation of tax liability would be in the following manner:

Since Mrs X is a resident and the basic exemption limit is not utilised, she can take benefit of adjusting the special rate income against the basic exemption limit. Thus, taxable LTCG = 8,01,786 – 2,50,000 = INR 5,51,786. Tax Liability = 5,51,786 * 20% = INR 1,10,357.

Capital Gain Tax on movable property – Reporting under Schedule CG of ITR

The ITR Form under which the taxpayer needs to report income from capital gains includes ITR-2 and ITR-3. Taxpayer must report STCG on other assets under A5 and LTCG on other assets under B9 of Schedule CG of the ITR. The taxpayer must report the following details:

  • Full value of consideration i.e. sales value
  • Deductions under Section 48
    • Cost of acquisition i.e. purchase value (indexed COA for LTCG)
    • Cost of improvement (indexed COI for LTCG)
    • Expenditure wholly and exclusively in connection with transfer i.e. transfer expenses
  • STCG or LTCG is automatically computed

Set Off & Carry Forward STCL under Section 111A of Income Tax Act

The loss on sale of movable property such as jewellery, car, painting, etc can be a Short Term Capital Loss or Long Term Capital Loss. As per the income tax rules for set off and carry forward of losses, STCL i.e. Short Term Capital Loss can be set off against both Short Term Capital Gains and Long Term Capital Gains in the current year. The taxpayer can carry forward the remaining loss for 8 years and set off against future STCG and LTCG only. Further, Long Term Capital Loss can be set off against Long Term Capital Gains only. The taxpayer can carry forward the remaining loss for 8 years and set off against future LTCG only.

Exemption from Capital Gain Tax on jewellery, car, painting, etc

The taxpayer having long term capital gain income from the sale of movable property such as jewellery, car, painting, 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.

A taxpayer can claim the exemption by reinvesting the proceeds from the sale into a specified capital asset. Such 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. However, if he/she sells the asset before the specified time period, he/she must report it as an income in the relevant financial year and pay tax at the applicable rate.

The taxpayer has an 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.

FAQs

How can I save capital gain tax on the sale of jewellery?

Capital gain tax on movable property such as jewellery, car, painting, etc can be saved. In the case of STCG, the Income Tax Act does not provide any specific exemption. You can save tax by setting off STCL on the sale of any other capital asset against such income. Further, you can claim chapter VI-A deduction from Section 80C to 80U. In the case of LTCG, you can claim a capital gain exemption under Section 54EE or Section 54F of the Income Tax Act.

Do I have to pay income tax on the sale of a car?

Income from the sale of a car is a Capital Gains and is taxable as per income tax. STCG on sale of car within 36 months of purchase is taxable at slab rates. LTCG on sale of car after 36 months of purchase is taxable at 20% with the benefit of indexation as per Section 112.

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.

Capital Gain Tax on Sale of Property/Land

Immovable Property or Land is considered to be a Capital Asset as per the Income Tax Act. A taxpayer who sells an immovable property or land should report such income or loss as Capital Gains it in the Income Tax Return and pay tax on it at the applicable rate. Capital Gain Tax on sale of property or land is determined on the basis of the nature of the capital gain. long term or short term. While the STCG on sale of immovable property is taxable at slab rates, the LTCG on sale of immovable property is taxable at 20% with indexation benefit under Section 112 of Income Tax Act.

Capital Gain Tax on Sale of Property / Land

Capital Gain can be of two types depending on the period of holding of the capital asset.

  1. Long Term Capital Gain (LTCG): If the taxpayer sells an immovable property or land held for more than 24 months, gain or loss on such sales is a Long Term Capital Gain (LTCG) or Long Term Capital Loss (LTCL).
  2. Short Term Capital Gain (STCG): If the taxpayer sells an immovable property or land held for up to 24 months, gain or loss on such sale is a Short Term Capital Gain (STCG) or Short Term Capital Loss (STCL).
The holding period for immovable property i.e. land, building and house property was 36 months up to FY 2016-17. However, the period of holding is reduced to 24 months FY 2017-18 onwards.
Tip
The holding period for immovable property i.e. land, building and house property was 36 months up to FY 2016-17. However, the period of holding is reduced to 24 months FY 2017-18 onwards.

Income Tax on Sale of Immovable Property

Income Tax on the sale of immovable property i.e. land, building, or house property is similar to the tax treatment of other capital assets.

Calculation of Long Term Capital Gain tax on sale of property in India

As per Section 112 of the Income Tax Act, LTCG on the sale of immovable property in India is taxable at 20% with an indexation benefit. To take the indexation benefit, the taxpayer can calculate the indexed cost of the acquisition using Cost Inflation Index i.e. CII to compute the long term capital gain. The cost of Improvement is the expense incurred by the taxpayer for making addition or improvements to the capital asset. The taxpayer can also calculate the Indexed Cost of Improvement using the CII.

  Particulars Amount
  Sale Consideration XXXX
Less Transfer Expenses (XXXX)
Less Indexed Cost of Acquisition (XXXX)
Less Indexed Cost of Improvement (XXXX)
Less Exemption u/s 54 to 54GB (XXXX)
  Long Term Capital Gain XXXX
  • Sale Consideration = In the case of immovable property, as per Section 50C of Income Tax Act, sale consideration should be the sale value of capital asset or value adopted by stamp duty valuation authority whichever is higher.
  • Transfer Expenses = expenses incurred exclusively for the sale of the capital asset.
  • Indexed Cost of Acquisition = Cost of Acquisition * (CII of year of Sale / CII of year of Purchase)
  • Indexed Cost of Improvement = Cost of Improvement * (CII of year of Sale / CII of year of Improvement)
  • Capital Gain Exemption – Taxpayer can claim capital gain exemption under Section 54 to 54GB on fulfilling the specified conditions.

Calculation of Short Term Capital Gain tax on sale of property in India

The Short Term Capital Gain on the sale of immovable property is taxable as per the slab rates. There is no indexation benefit in the case of a Short Term Capital Gain. Further, the capital gain exemption under Section 54 to 54GB is also not available. Thus, the Capital Gain is calculated on the basis of the cost of acquisition, cost of improvement, and transfer expenses.

  Particulars Amount
  Sale Consideration XXXX
Less Transfer Expenses (XXXX)
Less Cost of Acquisition (XXXX)
Less Cost of Improvement (XXXX)
  Short Term Capital Gain XXXX

Capital Gains on Sale of Property before Possession

Many times the taxpayer will sell the immovable property before receiving the possession of the same. Let’s understand the treatment of capital gains in that situation.

You have booked a property that is still under construction. So essentially you have acquired the rights for the under-construction property and not the property itself. Now before the construction completes, you want to sell the rights. Now the first question that comes to your mind is how do I calculate the capital gains for the same and what would be my tax liability?

Example

Darshil paid INR 20 Lakh on 01/01/2012 to book a house in a housing scheme. The scheme will give possession of the property on 01/01/2016. Darshil finds a better scheme and wants to sell the rights in this scheme. The taxability of the capital gains will depend on the time gap between the date of booking of the property and the date of agreement to transfer the rights in the under-construction property.

Various Situations

  1. If Darshil transfers the rights before 01/01/2015
    • Then it will result in short term capital gains since the holding period is less than 36 months.
    • Indexation benefit is not applicable
    • The capital gains will be taxable at the normal slab rate applicable to the individuals.
    • Since it will be short term capital gains, no capital gain exemption is available to save the capital gains tax on property.
  2. If Darshil transfers the rights after 01/01/2015
    • Then it will result in long term capital gains since the holding period is more than 36 months
    • Indexation benefit is applicable to the amount payable to the builder, stamp duty, and also registration fees.
    • The capital gains will be taxable at 20%
    • Since it will be long term capital gains, the exemption under Section 54F and Section 54EC will be available.
    • You can not claim the exemption under Section 54 because the exemption is for the purchase of new residential property against the sale of existing residential property. Here what you are selling is a right to acquire a residential house and not the residential house itself. Many people treat the sale of an under-construction property at par with a residential house for the purpose of claiming long term capital gain exemption which is incorrect and the taxpayer may receive a scrutiny notice.

Set Off & Carry Forward Loss on Sale of Immovable Property

  • The loss on sale of an immovable property held for more than 24 months is a Long Term Capital Loss. As per the income tax rules for set off and carry forward of losses, the taxpayer can set off Long Term Capital Loss (LTCL) against Long Term Capital Gain (LTCG) only. They can carry forward the remaining loss for 8 years and set off against LTCG only.
  • The loss on sale of an immovable property held for up to 24 months is a Short Term Capital Loss. The taxpayer can set off Short Term Capital Loss (STCL) against both Short Term Capital Gain (STCG) and Long Term Capital Gain (LTCG). They can carry forward the remaining loss for 8 years and set off against STCG and LTCG only.

ITR Form & Due Date for Income from Sale of Immovable Property

  • ITR Form: The taxpayer should file ITR-2 (ITR for Capital Gains Income) on Income Tax Website since income on the sale of immovable property such as land, building, or house property is Capital Gains.
  • Due Date – 31st July of the Assessment Year
    • Up to FY 2019-20 – 31st July
      31st July – for taxpayers to whom Tax Audit is not applicable
      30th September – for taxpayers to whom Tax Audit is applicable
    • FY 2020-21 Onwards
      31st July – for taxpayers to whom Tax Audit is not applicable
      31st October – for taxpayers to whom Tax Audit is applicable
  • Tax Audit: Since the income on the sale of unlisted stock is a Capital Gains Income, the applicability of tax audit under Section 44AB need not be determined.

How to save capital gains tax on sale of immovable property?

To save STCG on sale of immovable property, the taxpayer can set off Short Term Capital Loss from any other capital asset against it. Further, since STCG on sale of immovable property is taxable at slab rates, the taxpayer can claim Chapter-VIA deductions too.

To save LTCG on the sale of immovable property, the taxpayer can set off Short Term Capital Loss or Long Term Capital Loss from any other capital asset against such LTCG. Further, since LTCG on sale of immovable property is taxable at a special rate of 20%, the taxpayer cannot claim Chapter-VIA deductions against it. Taxpayer can claim following capital gain exemptions to save capital gain tax on sale of residential property:

  • Section 54F – Exemption on sale of residential house property on investment in another residential house property.
  • Section 54GB – Exemption on sale of residential house property on investment in equity shares of an eligible company.

Further, taxpayer can claim following capital gain exemptions to save capital gain tax on sale of immovable property:

  • Section 54EC – Exemption on sale of land or building on investment in NHAI/REC bonds.
  • Section 54EE – Exemption on sale of any long-term capital asset on investment in units of a specified fund.

A taxpayer can claim the exemption by reinvesting the sale proceeds into a specified capital asset to lower the capital gains and save taxes. The taxpayer must hold the new asset for the specified period as per relevant section. However, if he/she sells the asset before specified time period, they must report it as income in the relevant financial year and pay tax at applicable rate. The taxpayer has an option to open an account under Capital Gains Account Scheme and park sale proceeds in it until they invest in specified asset to claim the exemption.

Capital Gain Tax on Sale of Inherited Property

When a taxpayer receives a property as inheritance, it is not taxable for the receiver. However, when the taxpayer sells such property, it is taxable as Capital Gains. Below are the steps to calculate Capital Gains tax on sale of inherited property:

  • STCG = Sale Consideration – Transfer Expenses – Cost of Acquisition – Cost of Improvement
  • LTCG = Sale Consideration – Transfer Expenses – Indexed Cost of Acquisition – Indexed Cost of Improvement

The taxpayer must note the following for calculating Capital Gains:

  • Period of Holding to determine STCG or LTCG would be from the date of purchase by the previous owner
  • Cost of Acquisition would be the cost of the previous owner
  • Indexed Cost of Acquisition would be computed based on the year of acquisition of the previous owner

FAQs

How do you calculate long term capital gains on the sale of immovable property?

Income from sale of immovable property after 24 months of purchase is a Long Term Capital Gain taxable at 20% with benefit of indexation. In case of LTCG, the taxpayer should calculate Indexed Cost of Acquisition using Cost Inflation Index (CII) issued by income tax department to compute the LTCG.
LTCG = Sale Consideration – Expenses – Indexed Cost of Acquisition – Indexed Cost of Improvement

How can I save capital gains tax on the sale of immovable property?

You can claim capital gain exemption on investment in a specified asset and on fulfilling the specified sections. To save tax on Long Term Capital Gains from the sale of immovable property, the taxpayer can claim an exemption under Section 54, Section 54EC, Section 54EE, or Section 54GB of the Income Tax Act. These exemptions are not available for Short Term Capital Gains.

How to calculate tax on sale of inherited property?

The property received as inheritance is not taxable in the hands of the receiver at the time of inheritance. However, when the taxpayer sells the inherited property, it is taxable as capital gains. To calculate the capital gain, cost of acquisition is taken as cost to previous owner. The period of holding is calculated from the date of purchase of the previous owner.