Section 112A of the Income Tax Act, 2025, applies to Long Term Capital Gains (LTCG) from listed equity shares, equity-oriented mutual funds, and business trust units. The section allows a ₹1,25,000 annual exemption on eligible LTCG and taxes gains above this limit at 12.5%.
Finance Act 2018 introduced this provision after removing the earlier exemption under Section 10(38) for such equity investments. Taxpayers must follow specific rules for calculating gains, applying the grandfathering provision, and reporting transactions through Schedule 112A in their ITR.
This guide explains Section 112A of the Income Tax Act, including its applicability, LTCG tax rate, exemption limit, and calculation method. It also covers the grandfathering rule, Schedule 112A requirements, non-resident rules, and differences from Section 112.
To understand how capital gains fit into the wider tax system, read our page on basic tax concepts in India.
Key Takeaways
- Section 112A taxes LTCG from listed equity shares, equity-oriented mutual funds, and business trust units at a special rate.
- Taxpayers pay 12.5% tax on Section 112A LTCG exceeding the ₹1,25,000 annual exemption limit for transfers made on or after July 23, 2024.
- Investors must hold eligible equity assets for more than 12 months to qualify for LTCG treatment under Section 112A.
- Section 112A does not provide indexation benefits but allows eligible taxpayers to claim the ₹1,25,000 annual LTCG exemption.
- The grandfathering rule applies to eligible equity investments acquired before January 31, 2018, protecting gains up to that date.
- Section 112A covers STT-paid equity investments, while Section 112 applies to other long-term capital assets.
- Non-residents can claim Section 112A benefits but cannot adjust unused basic exemption limits against taxable LTCG. They may claim DTAA benefits where applicable.
What is Section 112A of the Income Tax Act?
The Finance Act 2018 introduced Section 112A of the Income Tax Act, with effect from Assessment Year 2019–20. This section taxes Long Term Capital Gains (LTCG) from specific equity investments at a special rate.
Section 112A applies to LTCG from the following assets:
- Listed equity shares of Indian companies where investors pay Securities Transaction Tax (STT) on transfer and follow the applicable acquisition conditions. Certain notified transactions receive exceptions from the STT purchase requirement.
- Units of equity-oriented mutual funds that invest at least 65% of their total assets in equity shares of domestic companies.
- Units of business trusts covered under the Income Tax Act.
Investors must hold these assets for more than 12 months to classify the gains as Long Term Capital Gains. The Income Tax Act treats gains from assets held for 12 months or less as short-term capital gains under Section 111A, which attracts tax at 20% for transfers made on or after 23 July 2024.
Taxpayers who want to check the exact statutory wording can read Section 112A of the Income Tax Act bare act on the India Code portal.
Note: The Income Tax Act, 1961, has been replaced by the Income Tax Act, 2025, which came into effect on April 1, 2026. The new Act applies from Tax Year 2026–27 onwards, while FY 2025–26 (AY 2026–27) returns are still governed by the 1961 Act.
Section 112A Tax Rate and LTCG Exemption Limit
Finance Act 2024 increased the Section 112A LTCG tax rate from 10% to 12.5% for transfers made on or after July 23, 2024. The revised rate applies from FY 2024–25 onwards, including FY 2025–26 and FY 2026–27.
The key Section 112A tax provisions are summarized below:
| Parameter | Details |
| Tax rate under Section 112A | 12.5% on LTCG exceeding the ₹1,25,000 exemption limit |
| Annual exemption limit | ₹1,25,000 per financial year |
| Indexation benefit | Section 112A does not provide any indexation benefit |
| Basic exemption adjustment | Resident individuals and HUFs can adjust their unused basic exemption limit against Section 112A LTCG, subject to applicable conditions |
| Surcharge cap | Section 112A LTCG attracts a maximum surcharge of 15% |
For FY 2026–27 (Assessment Year 2027–28), taxpayers pay a 12.5% tax on Section 112A LTCG exceeding ₹1,25,000.
For example, a taxpayer earning ₹2,00,000 LTCG from listed equity shares pays tax on ₹75,000 after applying the exemption limit. The tax liability equals ₹9,375 before adding applicable cess and surcharge.
Apart from this ₹1,25,000 exemption, taxpayers can further reduce their Section 112A LTCG by claiming an exemption under Section 54F of the Income Tax Act. It offers relief when they reinvest the net sale proceeds in a residential house property within the prescribed time limits and conditions.
How to Calculate Tax Under Section 112A?
Calculating tax under Section 112A of the Income Tax Act is straightforward if you know the sale price, purchase price, and whether your investment qualifies for long-term capital gains (LTCG).
| Step | Description |
|---|---|
| Step 1 | Calculate the full sale value of the investment. |
| Step 2 | Determine the cost of acquisition (purchase price or adjusted cost under the grandfathering rule, if applicable). |
| Step 3 | Calculate the long-term capital gain by deducting the cost of acquisition and eligible transfer expenses from the sale value. |
| Step 4 | Deduct the annual exemption of ₹1.25 lakh, if applicable. |
| Step 5 | Apply the tax rate of 12.5% on the remaining taxable gain. |
| Step 6 | Add surcharge (if applicable) and 4% Health & Education Cess. |
Tax Calculation Formula
Long-Term Capital Gain (LTCG)
= Sale Consideration − Cost of Acquisition − Transfer Expenses
Taxable LTCG
= LTCG − ₹1.25 lakh exemption (subject to eligibility)
Tax Payable
= Taxable LTCG × 12.5%
Grandfathering Rule Under Section 112A
The grandfathering rule is one of the most important provisions under Section 112A of the Income Tax Act. It protects the gains you accumulated on your equity shares and equity mutual fund units up to January 31, 2018, from the LTCG tax that Section 112A introduced.
The rule applies to eligible equity shares and equity mutual fund units acquired before January 31, 2018. Under this rule, the cost of acquisition for grandfathered assets is computed as the higher of:
- The actual purchase price paid by the investor to acquire the asset, or
- The lower of:
- (a) The Fair Market Value (FMV) of the asset as on January 31, 2018, and
- (b) The actual sale price received at the time of sale.
This rule excludes gains accumulated up to January 31, 2018, from Section 112A LTCG taxation. Only the gains arising after January 31, 2018, attract the applicable LTCG tax rate under Section 112A.
Example of Grandfathering Rule Under Section 112A
Consider an investor who purchased 100 shares of a listed company at ₹200 per share in January 2015. The share price on January 31, 2018, stood at ₹500. The investor sold all 100 shares in March 2027 at ₹800 per share.
Step 1: Calculate the grandfathered cost
The investor compares the actual purchase price, the FMV as of January 31, 2018, and the sale price to determine the cost of acquisition.
- Actual cost: ₹200 per share
- FMV on January 31, 2018: ₹500 per share
- Sale price: ₹800 per share
The grandfathered cost becomes ₹500 per share because it represents the higher of the actual cost and the lower of FMV and the sale price.
Step 2: Calculate LTCG under Section 112A
The investor calculates LTCG as follows:
₹800 (sale price) − ₹500 (grandfathered cost) = ₹300 per share
Total LTCG = ₹300 × 100 shares = ₹30,000
Since the annual Section 112A exemption limit of ₹1,25,000 exceeds the total LTCG, the investor does not pay LTCG tax on this transaction.
How to Report Section 112A in the Income Tax Return (ITR)
Schedule 112A of the Income Tax Return (ITR) forms helps taxpayers report LTCG from the sale of listed equity shares, equity-oriented mutual funds, and business trust units covered under Section 112A. This schedule requires the following details for each transaction:
- Name and ISIN of the scrip (company shares or mutual fund units) sold.
- Number of units or shares sold during the financial year.
- Sale price per unit and total sale consideration.
- Date of acquisition and cost of acquisition before applying the grandfathering rule.
- Fair Market Value (FMV) as on January 31, 2018, wherever applicable.
- Computed LTCG or loss for each individual transaction.
The Income Tax Department combines LTCG from all Section 112A transactions, applies the ₹1,25,000 annual exemption limit, and calculates taxable LTCG. Accurate Schedule 112A reporting helps taxpayers avoid calculation errors and income tax notices.
Differences Between Section 112 vs Section 112A
Many taxpayers confuse Section 112 and Section 112A of the Income Tax Act because both provisions cover Long Term Capital Gains (LTCG). However, they apply to different assets and tax rules. The table below highlights the key differences:
| Factor | Section 112 | Section 112A |
| Asset covered | Unlisted shares, bonds, debentures, immovable property, gold, and other long-term capital assets | Listed equity shares, equity-oriented mutual funds, and business trust units subject to STT conditions |
| Holding period for LTCG | More than 24 months for immovable property and certain assets | More than 12 months |
| LTCG tax rate | 12.5% without indexation. Eligible resident individuals and HUFs may claim an indexation benefit for certain land or buildings acquired before July 23, 2024 | 12.5% without indexation benefit |
| Exemption limit | No separate annual exemption limit | ₹1,25,000 per financial year |
| STT requirement | STT payment is not required | STT applies as per Section 112A conditions, with certain notified exceptions |
| Grandfathering rule | Not applicable | Applies to eligible assets acquired before January 31, 2018 |
Section 112A Applicability for Non-Residents
Section 112A applies to non-resident individuals and HUFs who earn LTCG from eligible equity shares, equity-oriented mutual funds, or business trust units. However, non-residents cannot adjust the basic exemption limit against LTCG taxable under Section 112A.
Non-residents pay 12.5% tax on Section 112A LTCG exceeding the ₹1,25,000 exemption limit, along with applicable surcharge and 4% health and education cess. They cannot use the unused basic exemption limit to reduce this special-rate capital gain.
Non-residents can claim DTAA (Double Taxation Avoidance Agreement) benefits if the applicable tax treaty between India and their country of residence provides a more favorable capital gains treatment. The taxpayer must satisfy the treaty conditions to apply the beneficial DTAA rate instead of the domestic Section 112A rate.
Loss Under Section 112A – Set Off and Carry Forward Rules
When the sale of listed equity shares or equity mutual funds results in a long-term capital loss instead of a gain, the following rules apply under Section 112A:
- A long-term capital loss under Section 112A can be set off only against Long Term Capital Gains in the same year or in the next eight assessment years.
- It cannot be set off against short-term capital gains or any other income head.
- The loss can be carried forward for eight consecutive assessment years, provided the return of income for the year in which the loss arose was filed within the due date under Section 139(1).
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