Section 112A LTCG ON Equity Share Or Units Of Equity Oriented Mutual Fund Or Units Of Business Trust FROM 01.04.2018

Hello friends as we all know that the finance bill 2018 has introduced a new section 112A for the taxability of long term capital gain arising on the transfer of equity share or units of equity oriented mutual fund or units of business trust.

Let’s discuss the new section as to whom this section applies, when this section applies, how to calculate the capital gain, and how much tax is to be paid under this section.

♣ Whom this section applies

The provision of this section is applicable to all assesses.

♣ When this section applies

This section applies when the total income of the assesse includes the income taxable under the head capital gain being long term capital gain arises on accounts of transfer of equity share or units of equity oriented fund or units of business trust after 31.03.2018 i.e. from 01.04.2018.

And STT is paid

• In case of equity shares: – At the time of acquisition and transfer (sale) of equity share.
• In case of units of equity oriented mutual fund or units of business trust: – At the time of transfer (sale) of the units.

♣ How to calculate the capital gain

There are two situation which arises and these are as under:-

Situation 1: Where the assesse acquires the shares or units before 01.02.2018.

In such a situation the Capital gain shall be calculated as under:-

Capital gain = Consideration received or accruing as a result of such transfer – Cost of acquisition.

Where Cost of acquisition means

Higher of

I. Actual cost of acquisition

II. Lower of

a) FMV of such assets as on 31.01.2018 and if there is no trade on 31.01.2018 then FMV shall be taken of the day when such share is traded in the stock exchange just before 31.01.2018

b) Consideration received or accruing as a result of such transfer.

Let us understand the scenario through an example:-

Suppose Mr. X has acquired 1, 00,000 shares on 01.04.2011 (i.e. before 01.02.2018) for Rs. 100/- (1, 00, 00,000) plus STT. Now the FMV as on 31.01.2018 for the shares say Rs. 300/- share. Now suppose Mr. X sold the shares on 01.04.2018 for:-

I. Rs. 290/- per share or,

II. Say for Rs. 350/- per share

Now what is the capital gain in case (i) above, it will be as under,

Capital gain = Consideration received or accruing as a result of such transfer – Cost of acquisition.

Where in this case Consideration received or accruing as a result of such transfer is Rs. 290/-

And the Cost of acquisition would be:-

Actual cost of acquisition			100/-	Cost of acquisition would be (Higher of these two ) :- 290/-
Lower of –	FMV of such assets as on 31.01.2018 and if there is no trade on 31.01.2018 then FMV shall be taken of the day when such share is traded in the stock exchange just before 31.01.2018	i.e. 300/-	290/-
	Consideration received or accruing as a result of such transfer.	i.e. 290/-

Capital gain 🙁 290*100,000) minus (290*100,000) i.e. nil

Now what is the capital gain in case (ii) above, it will be as under,

Capital gain = Consideration received or accruing as a result of such transfer – Cost of acquisition.

Where in this case Consideration received or accruing as a result of such transfer is Rs. 350/-

And the Cost of acquisition would be:-

Actual cost of acquisition			100/-	Cost of acquisition would be (Higher of these two ):- 300/-
Lower of –	FMV of such assets as on 31.01.2018 and if there is no trade on 31.01.2018 then FMV shall be taken of the day when such share is traded in the stock exchange just before 31.01.2018	i.e. 300/-	300/-
	Consideration received or accruing as a result of such transfer.	i.e. 350/-

Capital gain 🙁 350*100000) minus (300*100000) i.e. 50, 00,000/-

♣ Now the question arises that how to calculate the tax paid on the above (ii) situation as in the above (i) the capital gain is nil therefore no question of tax.

The tax to be paid would be @10% on the capital gain earned above 50, 00,000/- i.e. up to the long term capital gain arising from of equity share or units of equity oriented mutual fund or units of business trust. Is not taxable.

In our case (ii) above the tax would be

Long term capital gain	50, 00,000/-
Less : Long term capital gain upto 1, 00,000/- (as no tax is to be paid upto 100,000)	100000/-
Taxable Long term capital gain	49, 00,000/-
Tax	49, 00,000*10% = 4, 90,000/-

Situation 2: Where the assesse acquires the shares after 01.02.2018.

In such a situation the Capital gain shall be calculated as under:-

Capital gain = Consideration received or accruing as a result of such transfer – Cost of acquisition.

Where, cost of acquisition will be the actual cost incurred to acquired the shares or units (as the case may be)

Let us understand the situation through an example:-

Suppose Mr. X buys 10,000 shares on 02.02.2018 for Rs. 200/- per share and sold the shares for 250/- per share on 31.03.2019 and it is assume that he pays the STT both at the time of acquisition and at the time of transfer.

In such a situation the LTCG will be 500,000 and tax payable would be 40,000/- [{500000-100000(as exempted)}*10%]

♣ Now some points to be consider while applying this section :

• In the case of an individual or a Hindu undivided family, being a resident, where thetotal income as reduced by such long-term capital gains is below the maximum amount which is notchargeable to income-tax, then, the long-term capital gains, for the purposes of computing the LTCG shall bereduced by the amount by which the total income as so reduced falls short of the maximum amountwhich is not chargeable to income-tax.

Example :- The total income of Mr. X is say Rs. 10,00,000/- out of which 9,00,000/- is LTCG from equity share or units of equity oriented mutual fund or units of business trust. Is not taxable. Now the question arises that how to compute his tax: – the tax payable by Mr. X would be as under:-

Tax on LTCG: LTCG- [{(250000-income other than LTCG)}-100000]*10%

[{900000-(250000-100000)}-100000]*10% = 65000 plus applicable surcharge and cess.

• The deduction under Chapter VI-A shall be allowed from the gross total income as reduced by such capital gainsi.e.Chapter VI-A deduction will not be allowed from LTCG arising from equity share or units of equity oriented mutual fund or units of business trust.

• The limit of one lakh will be for all the LTCG arising from equity share or units of equity oriented mutual fund or units of business trust for the previous year and scripts wise.

• The LTCG from one equity share or units of equity oriented mutual fund or units of business trust will be first adjusted from the LTCL of the other equity share or units of equity oriented mutual fund or units of business trust the precious year and scripts wise before allowing the limit of Rs. 100000/-.

• The unutilized LTCL will be allowed to be carried forward.

• The rebate of section 87A will not be available for the tax payable on LTCG arising from equity share or units of equity oriented mutual fund or units of business trust.

• The benefit of indexation will not be available.