Section 112 of Income Tax Act (2023 Guide)

Taxpayers need to understand the provisions of Sections 112 and 112A of the Income Tax Act. These clauses calculate capital gains tax on stocks, mutual funds, and other types of personal property. This article details section 112 of Income Tax Act.

What is Section 112 and 112A of income tax act?

Section 112 of the Income Tax Act

Taxable persons are liable to 20% after indexation or 10% before indexation on capital gains on long-term capital assets as outlined in Section 2 (29A) of the IT Act, 1961 under Section 112 of the Income Tax Act.

This section applies to all securities, including stocks, bonds, and business trust units, whether listed or unlisted.

Exemption under Section 112 of the Income Tax Act.

• Mutual fund gains are not taxable

• Non-residents of India (NRIs) are exempt from Section 112 

• Section 112 is void if Section 112A applies

Section 112A of the Income Tax Act

If the value of gains exceeds INR 1,00,000, the assessee must pay a tax of 10% on the capital gained from long-term capital assets under Section 2 (29A) of the IT Act, 1961. This section applies to all securities, including stocks, bonds, and business trust units, whether listed or unlisted.

What is the proviso to u/s 112 (1)?

Proviso to section 112(1):

 “Provided that tax accrued on income arising from the transfer of long-term capital assets, which are listed securities or unit or zero coupon bonds, exceeds 10% of the amount of capital gains before provisions of the second proviso to section 48 apply, this excess will be disregarded when calculating the tax payable by the assessee.

Explanation.- for this section, –

 (a) The term “Listed securities” means the securities – 

(i) as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (32 of 1956); and

 (ii) listed on any recognized stock exchange in India: 

(b) “unit” have the meaning given to it in clause (b) of Explanation to section 115AB).”

Why was section 112A introduced?

The reason for the introduction of the new Section 112A, as envisioned by the government,  is that the long-term capital gains tax exemption for the transfer of shares, shares of equity-oriented funds, and shares of corporate trustees will destroy the tax base which leads to loss of income.

From 1 April 2018, the provisions of Section 10 (38) no longer apply to proceeds from the transfer of shares, shares of share-based funds, and shares of corporate trustees.

Effective from April 1, 2018, the provisions of Section 112A will apply to taxable income from the transfer of shares, shares of equity-oriented funds, and shares of business trust companies.

Which securities are covered under section 112A?

Section 112A of the Income Tax Act applies to the capital gains from the transfer of long-term capital assets. The following are such securities:

• An equity share of a company 
• Equity-oriented fund units
• Business trust units

Frequently Asked Questions (FAQ)

Is it mandatory to fill schedule 112A?

A taxpayer with long-term capital gains under the grandfathering provisions of section 112A must fill out schedule 112A.

Does Ltcg 112 have a rebate?

Rebate of tax under section 87A is not permissible from the tax payable on such LTCG.

Is a surcharge applicable in section 112A?

The surcharge on long-term capital gains(LTCG) on listed equity shares, units, etc., is 15%.

Is Section 112A of the Income Tax Act applicable to non-residents?

Yes, section 112A of the Income Tax Act applies to non-residents.

Wrapping Up

Section 112 of the Income Tax Act applies to all long-term capital assets under Section 2(29AA) of the Act. Different tax rates are outlined for long-term capital assets except those under Section 112A.

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