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Understand the taxation of Long Term Capital Gains (LTCG) on the sale of listed equity shares or units of equity-oriented mutual funds under Section 112A of the Income Tax Act, 1961. Explore the tax rate of 10%, exemptions up to Rs 1,00,000, and the calculation of the cost of acquisition. Learn about the basic exemption limit benefit, treatment of deductions and investments, and the rebate on tax for residents earning total income up to Rs 5,00,000. Note that this information is for informational purposes and not solicitation.

Long Term Capital Gains (LTCG) on Sale of Listed Equity Shares/Units of Equity oriented Mutual Funds (Sec 112A)

A. If any person Sales/transfers

  • Equity Shares listed on recognized stock exchange or
  • Units of Equity Oriented Mutual Funds

After one year from the date when such Share/Units of Mutual Funds was purchased and such transaction results in profits/gains then such profits/gains shall be taxable @ 10% u/s 112A.

B. Exemption from Tax – Tax shall not be charged on Income/Gains upto Rs 1,00,000 arising out of above transaction. In other words Income under this section is exempted upto Rs. 1,00,000. For example if income arises to assessee under this section is Rs. 5,00,000 then Rs. 4,00,000 is liable for tax here.

C. Cost of Acquisition – Cost of acquisition of asset sold under this section can be calculated in following manner:-

If Share/Mutual Fund acquired on or before 31.01.2018 If Share/Mutual Fund acquired after 31.01.2018
Step -1 (a.) F.M.V. on 31.01.2018 or (b.) Sale Proceeds

Find lower of above i.e. Min. of (a) or (b).

Step -2 Value derived at step 1 will be compare with Actual Cost. Higher of following shall be cost of acquisition- {Value derived at step 1 or Actual Cost}

Actual Price at which it is purchased.

Important Note- Benefit of Indexation is not available in this section.

D. Basic Exemption Limit Benefit – In case of Resident Individual/HUF, benefit of first slab i.e 2.5 Lakhs or 3 Lakhs as the case maybe shall be first granted from other incomes and if said basic exemption limit is not utilized completely then remaining amount shall be adjusted with income under this section.

For example – If Mr. Mohan aged about 45 years has Salary income of Rs. 2,00,000 and long term capital gains u/s 112A of Rs. 5,00,000 then slab benefit shall be granted in the following manner –

Particulars Amount
Basic Exemption Limit 2,50,000
Less: Salary Income (2,00,000)
Balance from Basic Exemption Limit 50,000

In this case the above balance of Rs. 50,000 shall adjust with Long Term Capital Gains u/s 112A and balance income u/s 112A i.e. Rs. 4,50,000 (5,00,000-50,000) is liable to tax @ 10%. In addition to this Mr. Mohan is also eligible for Rs. 1,00,000 exemption amount granted under this specific section. In the end Rs. 3,50,000(4,50,000-1,00,000) shall be charged to tax @ 10%.

Furthermore in case if RESIDENT INDIVIDUAL/HUF has only income from long term capital gains under this section during the year then whole amount of basic exemption limit i.e. Rs. 2,50,000 can be utilized against long term capital gains under this section.

However for NON RESIDENT INDIVIDUAL, Slab Exemption benefit of Rs. 2,50,000 is not available in other words if NRIs earns long term capital gains under this specific section i.e. 112A then their total gains without giving effect of basic exemption shall be liable to tax.

E. Treatment of Deductions/Investments – Benefits of Deductions from long term capital gains under this section such as LIC premium, Contribution to PF, Medical Insurance etc are NOT available i.e. Deductions u/s 80C, 80D etc are not be allowed from long term capital gains earned under the above said provisions.

F. Rebate on tax – If resident Individual earns total income upto Rs. 5,00,000 then they are eligible for rebate u/s 87A up to maximum of Rs. 12,500. In case if resident Individual has long term capital gains u/s 112A then benefit of rebate u/s 87A shall not be available from this gains.

(The author is practicing chartered accountant and can be reached out at ca.atif95@gmail.com, Mobile- 9811270863)

DISCLAIMER:- This Blog is for the purposes of information / knowledge and shall not be treated as solicitation in any manner or of for any other purposes whatsoever.

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