Analysis of Section 111A, 112 and 112A of The Income Tax Act, 1961

In this Article we shall discuss only about Shares, Debentures, Units of MFs, Units of Business Trust only.

Let us now analyse each section one by one:

Section 111A (CG on transfer of Short Term Capital Assets)

Applicable to: All Assesses

CG: Short Term

Tax Rate: 15%

Conditions for applying Section 111A.

– Securities Covered: Listed Equity Share and Listed Equity Oriented MF and Listed Units of Business Trust (Transactions on which STT is paid).

Exception: Shares listed in Recognized Stock Exchange located in International Financial Service Centre (IFSC), because STT is not paid in respect of transaction in IFSC.

– Assesse has to establish that the above Securities are held by the assesse as Capital assets and not as Stock in Trade.

Exception: FIIs are not to establish the same as securities held by them are always considered as Capital Asset and they are not required to prove the same.

Notes:

1. Benefit of Slab is available to Resident Individuals and HUF only and not available for Non Residents.

2. Chapter VI-A is not allowed from STCG under this section.

Section 112 (CG on transfer of Long Term Capital Assets)

Applicable to: All Assesses

CG: Long Term

Tax Rate: 20% or 10%

Conditions for applying Section 112.

  • Securities Covered: Shares, Debentures, Units of MF and Units of Business Trust (Whether all securities are listed or not).

Proviso to Section 112

Any LTCG on transfer of Listed Shares and Debentures and Zero Coupon Bonds

Tax Payable shall be lower of

  • 20% of LTCG after Indexation, if Applicable
  • 10% of LTCG without Indexation

Notes:

1. Proviso does not include Units of MF

2. In case of Non-resident, LTCG on unlisted securities are taxable @10% without applying First and Second proviso to section 48.

3. Benefit of Slab is available to Resident Individuals and HUF only and not available for Non Residents.

4. Chapter VI-A is not allowed from LTCG under this section.

5. Section 112 shall not be applicable where Section 112A applies.

Section 112A (Added in Budget 2018, i.e. Finance Act 2018) applicable from AY 2019-20

Applicable to: All Assesses

CG: Long Term

Tax Rate: 10% on excess of CG of ₹ 1,00,000

Conditions for applying Section 112.

  • Securities Covered: Listed Equity Shares, Units of Equity Oriented MF, Units of Business Trust. Exception: Shares listed in Recognized Stock Exchange located in International Financial Service Centre (IFSC), because STT is not paid in respect of transaction in IFSC.
  • Assesse has to establish that the above Securities are held by the assesse as Capital assets and not as Stock in Trade. Exception: FIIs are not to establish the same as securities held by them are always considered as Capital Asset and they are not required to prove the same.
  • In case of Equity shares STT is to be paid on both Transfer and Acquisition (not if purchased before 01.10.2004) and in case of Units of MF and Business Trust STT is to be paid on Transfer.

Cost of Acquisition in case of Capital Assets acquired on or before 31.01.2018:

Shall be higher of

  1. Cost of Acquisition
  2. Lower of
  • FMV of the asset on 31.01.2018 and
  • Sale Consideration

Computation of Tax

Capital Gain:

Up to ₹ 1,00,000 Nil

Above ₹ 1,00,000 10%

Example:

  1. Cost of Acquisition: ₹ 5,00,000
  2. Sale Consideration: ₹6,00,000
  3. FMV on 31.01.2018: 5,50,000

Answer:

Calculation of COA:

Lower of

  1. Sale Consideration: ₹6,00,000
  2. FMV on 31.01.2018: ₹ 5,50,000

Which is ₹ 5,50,000 will be compared with COA which is ₹ 5,00,000 for higher of either,

Which is ₹5,50,000

Capital Gain shall be

₹ 6,00,000 minus ₹ 5,50,000 equal to ₹ 50,000

Tax on CG shall be 5,000

Notes:

1. Benefit of Slab is available to Resident Individuals and HUF only and not available for Non Residents.

2. Chapter VI-A is not allowed from LTCG under this section.

3. Exemption u/s 10(38) shall not be available except if such securities are sold before 31.03.2018 and conditions of section 10(38) fulfills.

4. Section 112A overrides section 112. If Section 112A is not applicable then Sec 112 shall apply.

5. Benefit of 1st and 2nd proviso to section 48 shall not apply.

6. The benefit of ₹1,00,000 shall not be applicable to capital gains arising pursuant to buy back, sale of right entitlement, delisted shares, negotiated deals.

7. Loss under this section shall be carried forward and set off as per section 70 to 80, further losses can be set off against LTCG and balance shall be taxable.

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30 Comments

  1. Vidyasagar A says:

    Hi, Section 112A is applicable even in case of listed debentures, bonds but it is not mentioned here. The source that I referred is: blog.saginfotech.com/income-tax-section-111a-112a-112

    Please clarify & correct the article if this is true. thank you.

  2. Sunil Mohile says:

    My dividend income from equity share in A.Y. 2021-2022 is Rs 6032/= Should I declare the same in my return as dividend or only OS. What are the tax implications of such amount.

  3. Karthik says:

    Is mutual fund loss can be set off with F&O trading gains?.
    Lets say i have lost capital (STCL) 30k on mutual funds and i have captial gains on 50k from futures and options trading. can i set off as 20k in income?

    Are mutual funds comes under non speculative income?

  4. Karthikeyan says:

    Sir

    I have both debt and equity mutual fund which are redeemed in the AY2020-21.Total gain is Rs 4514 only.Where to fill those two(Equity and Debt) figures in ITR2.Whether under 111 ,112 or 112A?

  5. Lakshminarayanan says:

    I have LTCG losses from sale of shares on which STT is paid. I also have long term losses on sale of bonds where there is no STT paid. Can i carry forward both these losses? DO they nee to be carried forward separately or clubbed?

  6. S R SHAH says:

    ULIP Insurance policy taken in Dec 2011 for Rs 5,00,000 for sum assured Rs 5,50,000 and redeemed in February 2020 for Rs 10,17,000 where Tax deducted at source on capital gain for Rs 5,17,000 does it qualifies for Indexation while arriving at the profit on ULIP

  7. Sridharan V says:

    Dear Sir,
    Is it right that section 112A is only for LTCG where purchase of shares is made before 31-01-2018?
    And for LTCG on all purchases made after 31-01-2018 section 112 is applicable?

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