Exempt Up to 1 Lakh on Long Term Capital Gain Shares-Sec 112A

Introduction to Section 112A

1. 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.
2. The schedule 112A brought to tax gains which 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.

Conditions  for  Section 112A

The conditions to tax capital gains under section 112A are:

1. The sale should be of listed equity shares, units of a mutual fund and units of a business trust.
2. The securities should be long-term capital assets.
3. The transactions of purchase and sale of equity share are subject to STT (Securities Transaction Tax). In the case of equity-oriented mutual fund units or business trust, the transaction of the sale is liable to Securities Transaction Tax (STT).

Long-term capital gains under Section 112A

1. 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.
2. 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.
3. The gains exceeding Rs 1 lakh are liable to tax at 10% plus education cess and applicable surcharge
4. 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.

ILLUSTRATION

A taxpayer has annual (net) long-term capital gain under section 112A of Rs. 2,30,000, then the tax of 10% under section 112A is on Rs. 1,30,000 (Rs. 2,30,000 – Rs. 1,00,00).

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)

Set-off long-term capital loss from long-term capital gain

1. 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.
2. In case of losses from a few securities and gains from other securities, you can set-off the losses from the gains.
3. The net gains only get taxed and only if the net gains exceed Rs 1,00,000. 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.

Important Notes to be remember for Computation of Total Income

1. Deduction under chapter VI A cannot be availed in respect of such long-term capital gain.
2. Rebate under section 87A cannot be claimed in respect of tax payable on long-term capital gain under section 112A