The Indian Income Tax Act outlines special tax provisions to regulate capital gains for domestic taxpayers and various income types for non-resident entities. Sections 111A and 112A standardize the taxation of short-term (STCG) and long-term (LTCG) capital gains, respectively, arising from the transfer of equity shares, mutual fund units, and business trust units. STCG is taxed at a flat 20%, while LTCG is taxed at 12.5% only on the amount exceeding ₹1.25 lakh. Critically, these sections generally prohibit Chapter VI-A deductions, though resident individuals and HUFs can claim the basic exemption limit adjustment. Conversely, Sections 115A, 115AB, 115AC, and 115AD are tailored for non-residents and foreign investors. Section 115A covers general non-resident income (like interest, royalty, FTS, and dividend) taxed between 4% and 20%. The more specific sections deal with capital market instruments: 115AB (Overseas Financial Organizations) taxes mutual fund income and LTCG at 10% and 12.5%; 115AC (Non-Residents) applies a 10% rate to interest, dividend, and certain LTCG from instruments like FCCBs and GDRs. Lastly, 115AD (Foreign Portfolio Investors and Specified Funds) has segmented rates, taxing FPIs’ capital gains at 20% or 30%, and interest at 5%–20%. A unifying principle across all these non-resident provisions is the denial of both the basic exemption limit and most Chapter VI-A deductions, ensuring tax is collected at the fixed, special rates.
Determination of tax in certain special cases
Particulars |
Section 111A |
Section 112A |
Section 115A |
Section 115AB |
Section 115AC |
Section 115AD |
Eligible Assessee |
Any Assessee |
Any Assessee |
Non-Resident and Foreign Company |
Overseas financial organization (Offshore Fund) |
Non-Resident |
Foreign Portfolio Investor and Specified Funds |
Securities covered |
|
|
– |
Units of a mutual fund purchased in foreign currency. |
Foreign Currency Convertible Bonds (FCCBs)Foreign Currency Exchangeable Bonds (FCEB)Global Depository Receipts (GDRs) of an Indian company or Public Sector Undertaking (PSU) |
All securities other than units covered under Section 115AB. Specified securities include:Equity sharesUnits of equity-oriented mutual fundUnits of business trust |
Tax Rate on Income from covered securities |
– |
– |
10% to 20% on dividend income, as the case may be4% to 20% on Interest Income, as the case may be
|
10% |
|
5% / 20% – FPI10% – Specified Funds |
Tax rate on long-term capital gains |
– |
12.5%Note: The tax shall be calculated on capital gains exceeding Rs. 1.25 lakh. |
– |
|
|
12.5% on long-term capital gains referred to in section 112ANote: The tax shall be calculated on capital gains exceeding Rs. 1.25 lakh.
|
Tax rate on short-term capital gains |
• 20% |
– |
– |
– |
– |
20% on short-term capital gains referred to in section 111A
|
Admissibility of deduction under Chapter VI-A |
No |
No |
No, except under Section 80LA to a unit in IFSC and from royalty, and fees for technical services |
No |
No |
No |
Adjustment of basic exemption limit |
Available to resident individuals and resident HUF only |
Available to resident individuals and resident HUF only |
No |
No |
No |
No |
[As amended by Finance Act, 2025]
