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Article explains with examples Tax on long term capital gains  on Sale of Listed equity share in a company or on unit of an equity oriented fund in view of recent amendment proposed vide union budget 2018 by proposing amendment in Section 112A of the Income Tax Act, 1961.

The proposed new section 112A provides that where the total income of an assessee, includes any income chargeable under the head “Capital gains”, arising from the transfer of a long-term capital asset, being an equity share in a company or a unit of an equity oriented fund or a unit of a business trust, subject to the conditions specified under the section, the tax payable by the assessee on the capital gains exceeding one lakh rupees shall be calculated at the rate of ten per cent.

It is further proposed to provide that in the case of an individual or a Hindu undivided family, being a resident, where the total income as reduced by such long-term capital gains is below the maximum amount which is not chargeable to income-tax, then, such long-term capital gains shall be reduced by the amount by which the total income as so reduced falls short of the maximum amount which is not chargeable to income-tax.

It is also proposed to provide that capital gains under the said section shall be computed without giving effect to the first and second proviso to section 48.

It is also proposed to provide that the cost of acquisition for the purposes of computing capital gains under the section in respect of capital asset acquired by the assessee before the 1st day of February, 2018, shall be as provided in the said section.

The cost of acquisition for the purposes of computing capital gains referred to in sub-section (1) in respect of the long-term capital asset acquired by the assessee before the 1st day of February, 2018, shall be deemed to be the higher of-

(i) the actual cost of acquisition of such asset; and

(ii) the lower of-

(a) the fair market value of such asset; and

(b) the full value of consideration received or accruing as a result of the transfer of the capital asset.

Where the gross total income of an assessee includes any long-term capital gains referred to in sub-section (1), the deduction under Chapter VI-A shall be allowed from the gross total income as reduced by such capital gains.

“fair market value” means,-

(i) in a case where the capital asset is listed on any recognised stock exchange, the highest price of the capital asset quoted on such exchange on the 31st day of January, 2018:

It is also proposed to provide that where the gross total income of an assessee includes any long-term capital gains, deduction under Chapter VI-A shall be allowed from the gross total income as reduced by such capital gains.

It is also proposed to provide that where the total income of an assessee includes any long-term capital gains referred to in the said section, the rebate under section 87A shall be allowed from the income-tax on the total income as reduced by tax payable on such capital gains.

This amendment will take effect from 1st April, 2019 and will, accordingly, apply in relation to the assessment year 2019-2020 and subsequent years.

LONG TERM CAPITAL GAIN:=

Assessment Year  2018-19

Date of acquision No of Shares Rate per share Total Cost
01-04-2010 1000 10 10000
Date of Sales No of Shares Rate per share Total Value
20-02-2018 1000 400 400000
Long Term Capital Gain 390000
LTCG fully exempt u/s 10 (38) 390000

The is so because the new section 112A is effective from 01-04-19 only i.e from AY 2019-20.

Assessment Year  2019-20

Date of acquision No of Shares Rate per share Total Cost FMV on 31-01-18
01-04-2010 1000 10 10000 400
i.e.
400000
Date of Sales No of Shares Rate per share Total Value
30-06-2018 1000 600 600000
Long Term Capital Gain
Sale Value 600000
Less: FMV 400000
Long Term Capital Gain 200000
Exempt LTCG 100000

Assessment Year  2019-20

Date of acquision No of Shares Rate per share Total Cost FMV on 31-01-18
01-04-2010 1000 10 10000 400
i.e.
400000
Date of Sales No of Shares Rate per share Total Value
30-03-2018 500 450 225000
30-06-2018 500 600 300000
Long Term Capital Gain AY 18-19
Sale Value 225000
Less: Cost 5000
Long Term Capital Gain 220000
Exempt LTCG A.Y. 18-19 220000
Long Term Capital Gain AY 19-20
Sale Value 300000
Less: FMV 31-01-18 200000
Long Term Capital Gain 100000
Exempt LTCG A.Y. 19-20 100000

Computation of Total Income AY 2019-20
Scenario 1: Reduced Total Income >Rs. 500000
Income from Business 700000
Long Term Capital Gain 200000
Gross Total Income 900000
Less: LTCG (Treated seperately) -200000
Reduced GTI 700000
Less: Deductions u/s 80 C etc. -100000
Reduced Total Income 600000
Income Tax 32500
Less: Rebate u/s 87A 0
32500
Cess 4% 1300
Total Tax on Normal Income 33800
Income from Capital Gain
Long Term Capital Gain 200000
Less: Exempt -100000
Taxable Capital Gain 10% 100000
Income Tax 10000
Cess 4% 400
Total Tax on LTCG 10400
Total Tax Payable 44200
Scenario 2: Reduced Total Income < Rs. 500000
Income from Business 500000
Long Term Capital Gain 200000
Gross Total Income 700000
Less: LTCG (Treated seperately) -200000
Reduced GTI 500000
Less: Deductions u/s 80 C etc. -100000
Reduced Total Income 400000
Income Tax 7500
Less: Rebate u/s 87A -5000
2500
Cess 4% 100
Total Tax on Normal Income 2600
Income from Capital Gain
Long Term Capital Gain 200000
Less: Exempt -100000
Taxable Capital Gain 10% 100000
Income Tax 10000
Cess 4% 400
Total Tax on LTCG 10400
Total Tax Payable 13000
Scenario 3: Reduced Total Income < Rs. 250000
i.e. Minimum taxable income
Income from Business 300000
Long Term Capital Gain 200000
Gross Total Income 500000
Less: LTCG (Treated seperately) -200000
Reduced GTI 300000
Less: Deductions u/s 80 C etc. -100000
Reduced Total Income 200000
Add: Income from LTCG
(To make it = Rs. 250000 50000
Total Income 250000
Income Tax 0
Less: Rebate u/s 87A 0
0
Cess 4% 0
Total Tax on Normal Income 0
Income from Capital Gain
Long Term Capital Gain 200000
Less: Exempt -100000
Long Term Capital Gain 100000
Shifted to Normal Computation -50000
50000
Income Tax 5000
Cess 4% 200
Total Tax on LTCG 5200
Total Tax Payable 5200
Scenario 4: Reduced Total Income = Nil
i.e. Minimum taxable income
Income from Business 50000
Long Term Capital Gain 500000
Gross Total Income 550000
Less: LTCG (Treated seperately) -500000
Reduced GTI 50000
Less: Deductions u/s 80 C etc. -50000
Reduced Total Income 0
Add: Income from LTCG
(To make it = Rs. 250000 250000
Total Income 250000
Income Tax 0
Less: Rebate u/s 87A 0
0
Cess 4% 0
Total Tax on Normal Income 0
Income from Capital Gain
Long Term Capital Gain 500000
Less: Exempt -100000
Long Term Capital Gain 400000
Shifted to Normal Computation -250000
150000
Income Tax 15000
Cess 4% 600
Total Tax on LTCG 15600
Total Tax Payable 15600

Download above Examples in Excel Sheet.

Compiled by: CA LALIT MUNOYAT, B.Com.(Hons.),CS,FCA, DISA, @ munoyat@gmail.com # 98201 93508

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12 responses to “Tax on long term capital gains U/s 112A w.e.f. AY 2019-20 Decoded with examples”

  1. om prakash khemka says:

    what will be the rate of long term capital gains tax on sale of pvt ltd company shares which is naturally unlisted and whether indexation is allowed .kindly give simple and clear reply thanks a lot

  2. om prakash khemka says:

    please tell if we sell private ltd. company shares, which are naturally unlisted ,what will be the long term capital gains tax and if any indexation is allowed

  3. Sudhir Gupta says:

    Scenario 2: Reduced Total Income < Rs. 500000. Sir, you have given deduction of Rs 5000 u/s 87 A, but deduction is allowable max Rs. 2500 if total income is Rs.350000/-. In this example total income is Rs.400000/-. Please clarify.

  4. RAVINDRA PATIL says:

    As the LTCG on equity shares will be taxable from AY 2019-20, Can I carry forward my LTCL on equity shares booked for AY 2018-19 and set off against LTCG in next 8 years? If yes, how to fill LTCL in ITR for AY 2018-19?

  5. ashok2452 says:

    What will be the cost to be considered if the shares are inherited after 1st April 2018?

  6. om prakash bajoria says:

    sir
    rebate u/s 87A is restricted to Rs 2500/- and applicable where the total income does not exceeds rs 350000/-

    • A. kumar peer says:

      say my income is Rs 6 lakhs and interest on bank deposits is 70,000/-. I decide to sell some M.F. units on 1.8.19. They have been held for about 5 years and the LTCG is 1.7 lakhs.. Can I deposit 1.5 lakhs in LIC premium, NSCs and similar instruments. Will my taxable income be ( 6.00 + o.70 – 1.50 ) & (1.70 – 1.00) for LTCG TAX of 10% .

  7. Radhakrishnan.V says:

    We purchased UTI Master shares in 2000( units 1000)
    Suppose we sell before 31/3/2018, will it attract long term capital Tax ( capital gain is about Rs.1000.00)
    Suppose we sell it on 01/06/18 (with capital gain Rs.1500.00) how much tax is payable?
    2 Is it necessary to DEmat the M.F investments for selling them now ? If they are not in Demat form can we sell them now ? Please clarify
    Radhakrishnan

  8. Rinki goyal says:

    very well explained

  9. Mahesh says:

    Hello Sir
    Do we have any exemptions (Sec54) for the LTCG U/S 112A
    Kindly reply and thanks in advance

  10. TRIBHUVANKUMAR PUROHIT says:

    Sir, please arrange to give examples on Taxation of SIP considering current market scenario as looking to the imposed 10% Tax on LTCG if peoples opt out for withdrawal of SIP or will continue SIP then what will be the tax effect

    Awaiting best detailed reply as explained above

  11. Ashok Pati says:

    very CLEAR EXAMPLES. THANK YOU.

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