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Section 112A of Income Tax Act – LTCG Tax Rate, Exemption, Eligibility & Rules
A complete guide to how Section 112A taxes long-term capital gains on listed equity shares, equity mutual funds, and business trust units — current tax rate, exemption limit, eligibility conditions, and how to calculate and report LTCG in your ITR.
12.5% flat LTCG rate
₹1.25 Lakh annual exemption
50,000+ taxpayers assisted
Section 112A — Quick Facts
- LTCG Tax Rate12.5%
- Annual Exemption₹1,25,000
- Holding PeriodMore than 12 months
- Indexation BenefitNot available
- ConditionSTT must be paid
- Effective From23 July 2024 (rate)
What Is Section 112A of the Income Tax Act?
Section 112A of the Income Tax Act, 1961 governs the taxation of long-term capital gains (LTCG) earned on the sale of listed equity shares, units of equity-oriented mutual funds, and units of a business trust, where Securities Transaction Tax (STT) has been paid on the transaction. It replaced the earlier tax-free treatment of such gains under Section 10(38), which was withdrawn effective 1 April 2018.
In simple terms, if you sell listed shares or equity mutual fund units after holding them for more than 12 months, the profit is taxed under Section 112A once it crosses the annual exemption limit.
LTCG Tax Rate Under Section 112A
The Finance (No. 2) Act, 2024 revised the LTCG tax rate and exemption limit under Section 112A, effective for transfers made on or after 23 July 2024. These rates continue to apply for FY 2025-26 (Assessment Year 2026-27), with no change announced in the Union Budget 2025-26.
| Period of Transfer | LTCG Tax Rate | Annual Exemption |
|---|---|---|
| Before 23 July 2024 | 10% | ₹1,00,000 |
| On or after 23 July 2024 | 12.5% | ₹1,25,000 |
No indexation benefit is available on LTCG taxed under Section 112A, and no deduction under Chapter VI-A (such as Section 80C) can be claimed against this income. Applicable surcharge and 4% health and education cess apply on top of the tax computed.
Eligibility & Applicability of Section 112A
Section 112A applies only when all of the following conditions are met:
Assets Covered
- Listed equity shares of a company
- Units of an equity-oriented mutual fund
- Units of a business trust (REITs/InvITs)
Conditions to Be Met
- The asset must be held for more than 12 months (long-term)
- Securities Transaction Tax (STT) must be paid on sale (and on purchase, for shares acquired after 1 October 2004, subject to exceptions)
- The asset must be held as a capital asset, not as stock-in-trade
How to Calculate LTCG Tax Under Section 112A
Here is the step-by-step method to calculate long-term Capital Gains Tax on listed shares or equity mutual funds under Section 112A.
1
Determine the Holding Period
Confirm the asset was held for more than 12 months from the date of purchase to the date of sale.
2
Determine the Sale Value
Note the full sale consideration received for the shares or mutual fund units.
3
Determine the Cost of Acquisition
Use the actual purchase cost, applying the grandfathering rule if the asset was acquired on or before 31 January 2018.
4
Compute the Capital Gain
Subtract the cost of acquisition (and any transfer expenses) from the sale value to arrive at the long-term capital gain.
5
Deduct the ₹1.25 Lakh Exemption
Add up all LTCG under Section 112A for the financial year and deduct the annual exemption of ₹1,25,000.
6
Apply the 12.5% Tax Rate
Apply a flat 12.5% tax on the balance gain (for transfers on or after 23 July 2024), plus applicable surcharge and cess.
Grandfathering Clause Under Section 112A
To protect gains earned before the reintroduction of LTCG tax on equity, the law provides a grandfathering rule for shares or units acquired on or before 31 January 2018. For such assets, the cost of acquisition is taken as the higher of the actual purchase price, or the lower of the fair market value (highest quoted price) as on 31 January 2018 and the actual sale value. This ensures that only the gain accrued after 31 January 2018 is taxed under Section 112A.
Illustrative Example
Suppose an investor bought listed shares in FY 2022-23 for ₹3,00,000 and sold them in August 2024, after holding for more than 12 months, for ₹5,50,000. Assuming no other LTCG in that financial year:
| Particulars | Amount |
|---|---|
| Sale Value | ₹5,50,000 |
| Cost of Acquisition | ₹3,00,000 |
| Long-Term Capital Gain | ₹2,50,000 |
| Less: Exemption under Section 112A | ₹1,25,000 |
| Taxable LTCG | ₹1,25,000 |
| Tax @ 12.5% | ₹15,625 (plus applicable cess) |
Section 112A vs Section 111A — What's the Difference?
Section 112A
- Applies to long-term capital gains (held over 12 months)
- Taxed at 12.5% above ₹1.25 lakh exemption
- No indexation benefit
Section 111A
- Applies to short-term capital gains (held up to 12 months)
- Taxed at 20% (for transfers on or after 23 July 2024), no exemption threshold
- STT-paid condition applies, same as Section 112A
How to Report LTCG Under Section 112A in Your ITR
LTCG under Section 112A must be reported scrip-wise in Schedule 112A of ITR-2 or ITR-3, using details available in your broker or mutual fund capital gains statement. Cross-check the figures against your Annual Information Statement (AIS) before filing to avoid mismatch notices. See our guide on ITR filing due dates and ITR filing for AY 2026-27 for the applicable deadlines.
Frequently Asked Questions
What is Section 112A of the Income Tax Act?
Section 112A taxes long-term capital gains on listed equity shares, equity-oriented mutual funds, and business trust units where Securities Transaction Tax has been paid, once the gain in a financial year exceeds the annual exemption limit.
What is the current LTCG tax rate under Section 112A?
For transfers made on or after 23 July 2024, LTCG under Section 112A is taxed at a flat rate of 12.5%, with no indexation benefit. These rates continue to apply for FY 2025-26 / AY 2026-27.
What is the exemption limit under Section 112A?
The annual exemption limit is ₹1,25,000. Only long-term capital gains under Section 112A exceeding this amount in a financial year are taxable.
Which assets are covered under Section 112A?
Section 112A covers listed equity shares, units of equity-oriented mutual funds, and units of a business trust, provided Securities Transaction Tax has been paid on the transaction.
Is STT payment mandatory for Section 112A to apply?
Yes. Securities Transaction Tax must be paid on the sale (and generally on the purchase) of the asset for the gain to qualify for taxation under Section 112A.
What is grandfathering under Section 112A?
Grandfathering protects gains accrued up to 31 January 2018. For shares or units acquired on or before that date, the cost of acquisition is adjusted to the fair market value as on 31 January 2018, subject to certain conditions, so only the gain after that date is taxed.
Is indexation benefit available under Section 112A?
No. Long-term capital gains taxed under Section 112A are not eligible for indexation benefit on the cost of acquisition.
How is LTCG under Section 112A reported in the ITR?
LTCG under Section 112A must be reported scrip-wise in Schedule 112A of ITR-2 or ITR-3, using the capital gains statement from your broker or mutual fund house.
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This article is for general informational purposes only and does not constitute tax or legal advice. Tax rates and exemption limits are subject to change through future Finance Acts and CBDT notifications. Please consult a qualified tax professional for advice specific to your situation.