Simplifying Section 112A: A Must-Know for Investors and Taxpayers!

Section 112A of the Income Tax Act, 1961, India, was introduced in the Budget of 2018. It provides for taxation of long-term capital gains on listed securities at 10% for gains exceeding the threshold limit of Rs. 1 lakh.

The following are the key provisions of Section 112A:

• Applicability: Section 112A applies to long-term capital gains arising from the transfer of listed equity shares, units of a business trust, and equity-oriented mutual funds.
• Threshold limit: The threshold limit for Section 112A is Rs. 1 lakh. This means that long-term capital gains up to Rs. 1 lakh are not taxable under Section 112A.
• Tax rate: The tax rate under Section 112A is 10%.
• Indexation: Indexation is not allowed under Section 112A. This means that the cost of acquisition of the securities will be the actual cost of acquisition, and not the indexed cost.
• Set-off of losses: Long-term capital losses arising from the transfer of listed securities can be set-off against long-term capital gains arising from the transfer of other listed securities.

Here is an example of how Section 112A works:

• Mr. X sells 100 shares of ABC Ltd. for Rs. 2 lakh. He had purchased the shares for Rs. 1 lakh.
• The long-term capital gains arising from the sale of the shares is Rs. 1 lakh (Rs. 2 lakh – Rs. 1 lakh).
• Since the long-term capital gains are more than Rs. 1 lakh, they will be taxed under Section 112A.
• The tax payable by Mr. X will be Rs. 10,000 (10% of Rs. 1 lakh).

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