Section 112A of the Income Tax Act

The sale of listed equity shares, equity-oriented mutual funds, and business trusts are subject to long-term capital gains tax under Section 112A. For gains over Rs.1 lakh, these listed assets are subject to a 10% long-term capital gains tax.

Schedule 112A, which must be filled out for each scrip sold within a fiscal year, is part of the ITR forms. Schedule 112A must be fully completed by any taxpayer who has long-term capital gains under the grandfathering rules of Section 112A of the Income Tax Act, 1961.

Prior to Assessment Year 2018–2019, the provisions of Section 10(38) provided an exemption from long-term capital gain tax on the transfer of equity shares, units of equity-oriented funds, and units of business trust.

With effect from April 1, 2018, income resulting from the transfer of units of equity-oriented funds, equity shares, and units of business trust will not be subject to the provisions of section 10 (38) of the Income Tax Act. For taxable income resulting from the transfer of equity shares, units of equity-oriented funds, and units of business trust, the provisions of Section 112A will be applicable as of April 1, 2018.

•  Section 112A will be in effect starting from April 1, 2018,

• Since the implementation date, transactions impacting the imposition of a capital gain on the transfer of equity shares, units of equity-oriented funds, and units of business trust are subject to the provisions of Sec 112A of Income Tax Act, 1961.

• Only when STT has been paid at the time of the transfer and on the acquisition of equity shares or units of equity-oriented funds is Section 112A applicable.

According to Section 112A of the Income Tax Act, 1961, long-term capital gains that result from the transfer of a long-term capital asset, such as equity shares in a company, units in a mutual fund that invests in equity, or units in a business trust, are subject to tax at a rate of 10% of the gains.

These long-term capital gains, however, will not contribute towards the assessee's overall income and will not be subject to taxation.

Additionally, in accordance with Section 112A's rules, long-term capital gains from the transfer of a long-term capital asset, such as equity shares in a company, units of an equity-oriented mutual fund, or units of a business trust, listed on a recognised stock exchange in India and subject to securities transaction tax, are subject to tax at a rate of 10% of the capital gains.

Such long-term capital gains are free from taxation and are not counted towards the assessee's overall income.

This section is applied to the capital gains that arise from long-term capital assets transfer. The following are those assets:

• Company equity share 

• Equity oriented fund units

• Business trust units

So as to enjoy concessional rate benefits under this section, the holding period of the assets has to be greater than 12 months. THe tax that is payable on the total income is 10% if it exceeds Rs.1 lakh. Surcharge and education cess will be applicable on the gains taxable.

In the case of a HUF or an individual, the taxation of a resident is very different. In case the net income is reduced the Long-Term Capital Gain (LTCG) below the exemption cap, then the LTCG will reduce by such amount.

Wherever Section 112A's provisions apply, a long-term capital gain tax of 10% must be paid. Furthermore, the capital gain must exceed Rs.1 lakh in order to be subject to long-term capital gain tax at a rate of 10%.

The loss on long-term equity share sales or equity-related tools is a  Long-Term Capital Loss(LTCL). Kindly make a note that these long term losses on gains can be balanced by an LTCG.In an instance where the investor has sustained losses from certain securities and profits from other securities, then the same can be balanced off against one another. Only the net gain is taxable if they exceed Rs.1 lakh.

In order to protect the investor’s interest, grandfathering clauses were introduced by CBDT to make sure that the taxes are prospective in nature, and the taxes levied only on the gains from the levy date.

For this, acquisition cost of the equity-related or equity securities has to be calculated on the basis of a formula covered under this section.

• Value I- Market Valuation Fair as of 31st January 2018 or the real selling rate whichever is lesser

• Value II – Real acquisition cost or Value I whichever is more

LTCG = Value of sales – Acquisition cost – Transfer Expenses

Liability of tax = 10% (Long-term capital gain – Rs.1 lakh)

The IT returns for annual year 2020-21 contain Schedule 112A to enable reporting it scrip-wise of LTCG. Schedule 112A needs data like scrip name, ISIN code, units number or shares that are sold, purchase cost, sale price, and FMV as of 31st January 2018.