Section 112A
Also called: Section 112A of the Income-tax Act, 1961 · Topic: Taxation: Direct and Indirect Taxes, GST and Global Tax Issues · NCERT: Beyond NCERT
Meaning
Section 112A of the Income-tax Act, 1961 sets the tax on long-term capital gains (LTCG) from listed equity shares, equity-oriented mutual funds and business trust units. A capital gain is the profit you make when you sell an asset for more than you paid. The section applies only when Securities Transaction Tax (STT) has been paid. STT is a small tax on the value of each trade on a stock exchange. A gain counts as long-term if the listed asset was held for more than 12 months. From 23 July 2024, the rate is 12.5%, charged only on yearly gains above ₹1.25 lakh. There is no indexation, which means the purchase price is not raised to account for inflation. The Income-tax Act 2025 replaces the 1961 Act from 1 April 2026, so the section number may change.
Formula: LTCG tax = 12.5% × (total long-term gain in the year − ₹1.25 lakh)
Example
An investor buys listed shares and sells them two years later at a profit of ₹3 lakh. The first ₹1.25 lakh is exempt, so ₹1.75 lakh is taxed. At 12.5%, the tax is ₹21,875, before any surcharge and the 4% Health and Education Cess.
Don't confuse with
- Short-term capital gains on listed equity: these are gains on assets sold within 12 months. Since 23 July 2024 they are taxed at 20%, and there is no ₹1.25 lakh exemption.
- Securities Transaction Tax: STT is charged on the value of every trade, even a trade that loses money. Section 112A taxes only the profit, and only when the asset is sold.