Summary:
Section 112A of the Income Tax Act governs the taxation of long-term capital gains on listed equity shares, equity mutual funds, and certain business trusts. Long-term gains exceeding ₹1.25 lakh in a financial year are taxed at 12.5%, provided the asset is held for more than 12 months and Securities Transaction Tax (STT) conditions are met. Understanding the exemption limit, grandfathering rule, and reporting requirements can help investors avoid tax notices and optimize their tax liability.
Under Section 112A, you will determine the amount of long term capital gain tax to pay on the profit gained from listed shares or equity mutual funds acquired over a period of more than 1 year and sold them after that time period. In this blog read everything you need to know about LTCG – the rate, the exemption, the calculation – and where most people go wrong.
What Is Section 112A of the Income Tax Act?
Section 112A has been introduced from Budget 2018. Previously, under Section 10(38), there were no taxes charged on long-term capital gains from listed equity securities. Section 112A eliminated that exemption and placed these gains in the tax stream - at a lower rate and leaving intact the annual exemption amount.
What is the Purpose of Section 112A?
To tax long-term equity gains that have not been taxed before, keeping the tax rate cushioned and well below normal income tax rates, and having a basic exemption for small investors.
Which Investments are Covered Under Section 112A?
The three asset classes covered are -
- Listed equity shares of firms listed on recognised Indian stock exchanges
- Units of equity oriented mutual funds
- Units of equity oriented business trusts such as some InvITs and REITs.
Eligibility Conditions for Section 112A
All three conditions below must be met. Missing even one means the gains are taxed differently.
Long-Term Capital Asset Requirement
The asset must be held for more than twelve months from the date of purchase to the date of sale - not settlement date. Sell before twelve months and the gain is short-term, taxed under Section 111A instead.
Securities Transaction Tax Requirement
STT must have been paid on the transaction. For exchange-traded shares and equity fund redemptions, your broker and AMC handle this automatically. For shares acquired through ESOPs, off-market purchases, or rights issues, the tax department has clarified that STT on acquisition is not always mandatory - only on the sale side in specific notified cases.
Who is Eligible Under Section 112A?
All taxpayer categories qualify - individuals, HUFs, firms, companies, and NRIs. For NRIs, the same 12.5% rate applies but the relevant Double Taxation Avoidance Agreement may also affect the final tax treatment depending on the country of residence.
Tax Rate Under Section 112A (2024-25 onwards)
LTCG Exemption Threshold
The first ₹1.25 lakh of long-term capital gains in a year is fully exempt. This was revised from ₹1 lakh to ₹1.25 lakh from FY 2024-25 following Budget 2024. Gains below this threshold attract zero tax - but still must be disclosed in Schedule CG of your ITR.
Tax Rate on Gains Exceeding the Threshold
Anything above ₹1.25 lakh is taxed at 12.5% flat - revised from 10% for transactions on or after 23 July 2024. This rate does not change based on your income slab. A taxpayer in the 5% bracket and one in the 30% bracket both pay the same 12.5% on Section 112A gains.
Impact of Surcharge and Cess
Add 4% Health and Education Cess on the tax amount. For most individual taxpayers this makes the effective rate approximately 13%. Those with total income above ₹50 lakh attract surcharge on top, pushing the effective rate slightly higher depending on income level.
How to Calculate LTCG Tax Under Section 112A
Step-by-Step Calculation Process
Step 1 - Total all long-term capital gains from equity shares and equity mutual fund redemptions held over twelve months during the year.
Step 2 - Subtract ₹1.25 lakh exemption from total LTCG. Only the balance is taxable.
Step 3 - Apply 12.5% on the taxable amount.
Step 4 - Add 4% cess on the tax figure. Add surcharge if total income qualifies.
Practical Example
Rajan held listed shares purchased in January 2024 and sold them in March 2026 - over twelve months. Total long-term capital gain: ₹3,00,000.
Taxable LTCG = ₹3,00,000 − ₹1,25,000 = ₹1,75,000 Tax at 12.5% = ₹1,75,000 × 12.5% = ₹21,875 Cess at 4% = ₹21,875 × 4% = ₹875 Total tax payable = ₹22,750
Grandfathering Rule Explained
For shares or equity funds purchased before 31 January 2018, the cost of acquisition is the higher of the actual purchase price or the Fair Market Value on 31 January 2018. This prevents gains that built up before Section 112A existed from being taxed retrospectively. For anything bought after 31 January 2018, actual purchase price is the cost - no adjustment needed.
Section 112A vs Section 111A – Understanding the Difference
Tax Treatment of Short-Term Capital Gains
Section 111A is applicable to the same asset types (listed shares and equity mutual funds) but in cases where the holding period is 12 months or less. This rate is 15% until 22 July 2024 and 20% from then onwards.
Key Differences Between Sections 111A and 112A
| Parameter | Section 111A | Section 112A |
| Asset Type | Listed equity, equity MFs | Listed equity, equity MFs |
| Holding Period | Up to 12 months | More than 12 months |
| Tax Rate | 20% (post July 2024) | 12.5% (post July 2024) |
| Exemption | None | ₹1.25 lakh per year |
| STT Required | Yes | Yes |
One day is the difference between 20% and 12.5% tax. The purchase date and sale date are the two most important numbers in any equity tax calculation.
Conclusion
Section 112A taxes long-term equity profits at 12.5% above ₹1.25 lakh - hold over twelve months, pay STT, apply grandfathering for pre-2018 purchases, claim the exemption, and pay tax on the balance. Even gains below ₹1.25 lakh must be reported in Schedule CG. Missing capital gains reporting is one of the most common triggers for income tax notices in India - disclose everything, even what is exempt.
