SECTION 112A OF INCOME TAX ACT: RATE & ITS COST OF ACQUISITION
SECTION 112A OF INCOME TAX ACT: RATE & ITS COST OF ACQUISITION
TAX RATES FOR CERTAIN LONG TERM CAPITAL GAINS (LTCG) (112A) & ITS COST OF ACQUISITION
Section 112A: TAX ON LONG TERM CAPITAL GAINS (LTCG) OF CERTAIN ASSETS
Section 112A was inserted by the Finance Act 2018 to tax long term capital gains from the sale of listed equity shares, units of equity oriented mutual funds and units of business trust. The tax rate of such shares is as follows: -
LONG TERM CAPITAL GAINS (LTCG) on transfer of equity shares or equity oriented units or units of business trust, in excess of Rs. 1,25,000 shall be taxable: -
@ 10% (in excess of Rs. 1,00,000) for any transfer which takes place before 23rd July, 2024 and
@ 12.5% for nay transfer which takes place on or after 23rd July, 2024 (Amended by Finance Act 24, w.e.f. 23rd July, 2024),
If the following conditions are satisfied:
SECTURITIES TRANSACTION TAX (STT) paid on acquisition & transfer of Equity Shares.
SECTURITIES TRANSACTION TAX (STT) paid on transfer of equity oriented units and units of business trust.
LONG TERM CAPITAL GAINS (LTCG) arising from transaction in recognized stock exchange located in an international financial service center (IFSC) would be taxable @ 10%/12.5% where the consideration in foreign currency even though SECTURITIES TRANSACTION TAX (STT) NOT PAID in respect of such transactions.
Deductions u/s VI-A & Rebate u/s 87A are not allowed against Capital Gain referred u/s 112A.
Central Government may notify certain modes of acquisition equity shares where payment of SECTURITIES TRANSACTION TAX (STT) on acquisition would not be applicable. Following are the cases where payment of SECTURITIES TRANSACTION TAX (STT) condition would not be applicable:
Equity shares acquired before 1/10/2004 eligible for the benefit of Section 112A (as there was no SECTURITIES TRANSACTION TAX (STT) before 01/10/2004).
Equity shares acquired on or after 01/10/2004 eligible for benefit of Section 112A where SECTURITIES TRANSACTION TAX (STT) were not chargeable but in the following 3 conditions, benefit of Section 112A is not applicable: -
Where Acquisition of existing listed equity shares in a company whose equity shares are not frequently traded in a Recognized Stock Exchange of India is made through a Preferential Issue.
Provided above clause not applicable if acquisition: -
Approved by Supreme Court (SC), High Court (HC), National Company Law Tribunal (NCLT), Securities & Exchange Board of India (SEBI) or Reserve Board of India (RBI).
By any Non resident as per Foreign direct investment guidelines.
By an Investment Fund or Qualified Institutional Buyer.
Acquisition of existing listed equity shares in a company, not entered through a Recognized Stock Exchange of India
Provided above clause not applicable if acquisition: -
Acquisition through an issue of share by a company other than preferential issue.
Acquisition which has been approved Supreme Court (SC), High Court (HC), National Company Law Tribunal (NCLT), Securities & Exchange Board of India (SEBI) or Reserve Board of India (RBI).
Acquisition under Employee Stock option plan.
By any Non resident as per Foreign direct investment guidelines.
Acquisition under SEBI (Substantial acquisition of Shares and Takeovers) Regulations, 2011.
Acquisitions from the Government.
Acquisition by mode of transfer referred to in Section 47 (exempt transfers) or Section 50B (Slump Sale) if the acquisition by the previous owner was not acquired as per specified mode.
By an Investment Fund or Qualified Institutional Buyer.
Acquisition during the intervening period starting from the date on which the company is delisted and ending on the date immediately before the date on which the company is again listed in Recognized Stock Exchanges.
COST OF ACQUISITION
In case of equity shares or unit of equity oriented fund or unit of Business Trust acquired before 01/02/2018 & transferred on or after 01/04/2018, Cost of acquisition will be
Higher of Step 1 & Step 2 where,
Step 1: Cost of acquisition
Step 2: Lower of Fair market value as on 31/01/2018* and Full value of consideration (FVOC)
Note: Indexation not available for computation of Capital Gains u/s 112A.
*Computation of Fair market value on 31/01/2018:
Listed Share/ Units on Recognized Stock Exchange on 31/01/2018:
Fair market value= Highest price quoted on 31/01/2018.
Note: If no trading on 31/01/2018 then the highest price of last trading session before 31/01/2018.
Units/ Shares not listed on 31/01/2018:
In case of units: Net Asset Value (NAV) as on 31/01/2018.
In case of Share not listed on 31/01/2018 but listed on date of transfer: (A*B)/C
Where,
A= Cost of Acquisition
B= Cost inflation index for Financial Year 17-18 i.e. 272
C= Cost inflation index in which the share was first held by assessee or 01-02, whichever is later.
Equity Oriented Fund meaning: Fund set up under a scheme of a Mutual Fund or Unit Linked Insurance Policy to which exemption u/s 10(10D) does not apply:
In a case where fund invests in the units of another fund which is traded on a Recognized Stock Exchange a minimum of 90% of its total proceeds in the unit of such other fund and such other fund also invests a minimum of 90% of its total proceeds in the equity shares of domestic companies listed on a Recognized Stock Exchange; and
In any other case, a minimum of 65% of the total proceeds of such fund invested in the equity shares of domestic companies listed on a Recognized Stock Exchange.
