Overview of Section 112
Section 112 of the Income Tax Act, 1961 governs the taxation of long-term capital gains (LTCG) for assets not covered under Section 112A. This includes various capital assets such as unlisted securities, immovable property, zero-coupon bonds, and other long-term capital assets.
Key Features of Section 112
Applicable Assets
Section 112 applies to:
- Listed securities where STT is notpaid on acquisition/transfer
- Unlisted securities
- Immovable property (land/building)
- Zero-coupon bonds
- Any other capital asset not covered under Section 112A
Holding Period Requirements
- 12 months or more: For listed securities and equity-oriented funds
- 24 months or more: For unlisted shares, immovable property, and other capital assets
Tax Rates Under Section 112 (Effective from 23rd July 2024)
The Union Budget 2024 introduced significant changes to LTCG taxation:
| ASSET TYPE | TAX RATE BEFORE 23/07/2024 | TAX RATE FROM 23/07/2024 | INDEXATION BENEFIT |
| Listed securities (non-STT) | 10% (without indexation) or 20% (with indexation) | 12.5% (without indexation) | No |
| Unlisted securities | 20% (with indexation) | 12.5% (without indexation) | No |
| Immovable property | 20% (with indexation) | 12.5% (without indexation) or 20% (with indexation)* | Optional for properties acquired before 23/07/2024 |
| Zero-coupon bonds | Lower of 10% (without indexation) or 20% (with indexation) | 12.5% (without indexation) | No |
| Other capital assets | 20% (with indexation) | 12.5% (without indexation) | No |
*For land/buildings acquired before 23/07/2024, taxpayers can choose between 12.5% without indexation or 20% with indexation.
Calculation Methodology
Step-by-Step Computation
- Determine Full Value of Consideration: Sale price of the asset
- Deduct Transfer Expenses: Brokerage, commission, etc.
- Calculate Net Sale Consideration: Step 1 – Step 2
- Determine Cost of Acquisition:
-
- For assets sold before 23/07/2024: Indexed cost allowed
- For assets sold after 23/07/2024: Original cost (no indexation)
- Deduct Cost of Improvement(if any)
- Compute LTCG: Net sale consideration – (Cost of acquisition + Cost of improvement)
- Apply Relevant Tax Rate: As per the asset type and sale date
Indexation Formula (For Pre-23/07/2024 Sales)
Indexed Cost = Original Cost × (CII Year of Sale/CII Year of Purchase)
Where CII = Cost Inflation Index notified by CBDT
Special Provisions
Adjustment Against Basic Exemption Limit
Resident individuals can adjust LTCG against any unused basic exemption limit (₹2.5 lakh) after adjusting other income. This benefit is not available to non-residents.
Example: If normal income is ₹1 lakh and LTCG is ₹4 lakh:
- Unused basic exemption = ₹2.5 lakh – ₹1 lakh = ₹1.5 lakh
- Taxable LTCG = ₹4 lakh – ₹1.5 lakh = ₹2.5 lakh
- Tax @ applicable rate on ₹2.5 lakh
No Chapter VI-A Deductions
Deductions under Sections 80C to 80U cannot be claimed against LTCG under Section 112 7.
Set-off and Carry Forward of Losses
- Long-term capital losses (LTCL) can be set off only against LTCG
- Unadjusted LTCL can be carried forward for 8 assessment years
Examples :-
Example 1: Sale of Land (Post 23/07/2024)
- Purchased: ₹20 lakh in 2005
- Sold: ₹65 lakh in August 2024
- Option 1 (With Indexation):
- Indexed cost: ₹20 lakh × (363/117) = ₹62.05 lakh
- LTCG: ₹65 lakh – ₹62.05 lakh = ₹2.95 lakh
- Tax @20% = ₹59,000
- Option 2 (Without Indexation):
- LTCG: ₹65 lakh – ₹20 lakh = ₹45 lakh
- Tax @12.5% = ₹5.62 lakh
Example 2: Unlisted Shares
- Purchased: ₹10 lakh
- Sold: ₹15 lakh after 24 months
- LTCG: ₹5 lakh
- Tax @12.5% = ₹62,500
Reporting Requirements
Taxpayers must report LTCG under Section 112 in:
- ITR-2 or ITR-3 forms
- Schedule CG with details of:
- Full sale consideration
- Cost of acquisition (indexed if applicable)
- Transfer expenses
- Exemptions claimed
Key Changes from Budget 2024
- Uniform 12.5% tax rate for most LTCG
- Removal of indexation benefit for most assets
- Simplified holding periods: Only 12/24 months categories
- Increased basic exemption limit for Section 112A assets to ₹1.25 lakh (doesn’t apply to Section 112)
Comparison with Section 112A
| PARAMETER | SECTION 112 | SECTION 112A |
| Applicable Assets | Non-Specified LTCG assets | Equity shares, equity funds, business trust units |
| Tax Rate | Varies by asset (mostly 12.5% now) | 12.5% on gains > ₹1.25 lakh |
| Indexation | Not available (except land/buildings acquired pre-23/07/2024) | Never available |
| Basic Exemption | Can use ₹2.5 lakh general limit | Special ₹1.25 lakh limit |
This comprehensive guide covers all aspects of LTCG computation under Section 112 post the significant changes introduced in Budget 2024. Taxpayers should carefully evaluate their asset types and acquisition dates to determine the most beneficial computation method.
