Section 112A Explained: Taxation of Equity Mutual Funds & Shares
Section 112A of the Income Tax Act governs taxation of long-term capital gains on listed equity shares, equity-oriented mutual funds, and business trust units. It provides exemption up to 1,00,000 and levies 10% tax beyond that, without indexation benefit.
Section 112A of the Income Tax Act governs taxation of long-term capital gains on listed equity shares, equity-oriented mutual funds, and business trust units. It provides exemption up to ₹1,00,000 and levies 10% tax beyond that, without indexation benefit.
Which Investments Are Covered Under Section 112A?
Section 112A applies only when Securities Transaction Tax (STT) has been paid during buying and selling.
| Investment Type | Covered Under Section 112A |
|---|---|
| Listed Equity Shares | Yes |
| Equity-Oriented Mutual Funds | Yes |
| Units of Business Trusts | Yes |
| Debt Funds / Unlisted Shares | No |
Minimum Holding Time to Apply Section 112A
You must hold the investment for more than 12 months. If you hold for less than 12 months, the gain is considered short-term, and it is taxed differently under Section 111A.
How Much Tax Do You Pay?
| Long-Term Gain Amount | Tax Rate |
|---|---|
| Up to ₹1,00,000 in a financial year | No tax |
| Above ₹1,00,000 | Taxed at 10% (without indexation benefit) |
Indexation benefit is not allowed under Section 112A.
Example
| Description | Amount |
|---|---|
| Total Long-Term Gain | ₹1,80,000 |
| Exempt Limit | -₹1,00,000 |
| Taxable Amount | ₹80,000 |
| Tax @10% | ₹8,000 |
So, you will pay ₹8,000 tax plus cess.
Grandfathering Rule (For Older Investments)
If you bought shares or equity mutual funds before 31 January 2018, the cost for tax calculation will be the higher value of:
- The actual purchase price
- The market value on 31 January 2018
This protects earlier profits from sudden taxation.
Can You Adjust Capital Losses?
Yes. Long-term losses from equity can be:
- Used only against long-term gains
- Carried forward for up to 8 years
Quick Summary
| Rule | Details |
|---|---|
| Minimum holding period | More than 12 months |
| Tax exemption | First ₹1,00,000 long-term gain is tax-free |
| Tax rate | 10% (no indexation allowed) |
| Applies to | Listed shares, equity mutual funds, business trust units |
| Loss adjustment | Allowed only against long-term gains |
Why This Matters
If you invest in shares or mutual funds, knowing this rule helps you:
- Plan your selling date
- Reduce tax legally
- Report gains correctly while filing Income Tax Return (ITR)
Final Thought
Section 112A makes equity investment attractive while ensuring fair taxation. Understanding how this rule works gives you better control over your tax planning and helps you keep more of your profits.
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Note-All the aforementioned information in the article is taken from authentic resources and has been published after moderation. Any change in the information other than fact must be believed as a human error. For queries mail us at marketing@myitronline.com
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Krishna Gopal Varshney
An editor at apnokacaKrishna Gopal Varshney, Founder & CEO of Myitronline Global Services Private Limited at Delhi. A dedicated and tireless Expert Service Provider for the clients seeking tax filing assistance and all other essential requirements associated with Business/Professional establishment. Connect to us and let us give the Best Support to make you a Success. Visit our website for latest Business News and IT Updates.
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Krishna Gopal Varshney
An editor at Myitronline
Krishna Gopal Varshney, Founder & CEO of Myitronline Global Services Private Limited at Delhi. A dedicated and tireless Expert Service Provider for the clients seeking tax filing assistance and all other essential requirements associated with Business/Professional establishment. Connect to us and let us give the Best Support to make you a Success. Visit our website for latest Business News and IT Updates.
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