Tax on Long-Term Capital Gains under Section 112A in Certain Cases

(1)      Conditions to be satisfied for applicability of Section 112A [Section 112A(1)]:

Notwithstanding anything contained in section 112, the tax payable by an assessee on his total income shall be determined in accordance with the provisions of section 112A(2), if the following conditions are satisfied:

(i)         the total income includes any income chargeable under the head “Capital gains”;

(ii)        the capital gains arise from the transfer of a long-term capital asset being:

• an equity share in a company or
• a unit of an equity oriented fund or
• a unit of a business trust;

Taxability of ULIP on Sale or Redemption:

The Finance Act, 2021 has included such ULIPs [to which exemption under section 10(10D) does not apply on account of the applicability of the ‘fourth and fifth provisos] in the definition of equity oriented fund in section 112A so as to provide these policies the same treatment as unit of equity oriented fund. Thus provisions of section 112A would also apply on sale/redemption of such ULIPs if there is any long-term capital gain on account of such ULIPs.

 (iii) Securities Transaction Tax has been paid as under:

(a)  In the case of equity shares —

In a case where the long-term capital asset is in the nature of an equity share in a company, securities transaction tax has been paid on acquisition and transfer of such capital asset; or

(b)  In the case of unit of an equity oriented fluid or a unit of a business trust

In a case where the long-term capital asset is in the nature of a unit of an equity oriented fund or a unit of a business trust, securities transaction tax has been paid on transfer of such capital asset.

(2) Tax Payable on Total Income if it includes such Long-Term Capital Gain [Section 112A(2)]:

The tax payable by the assessee on the total income referred to in section 11 2A(l) shall be the aggregate of—

(i)         the amount of income-tax calculated on such long-term capital gains exceeding Rs.1,00,000 @ 10%; and

(ii)        the amount of income-tax payable on the total income as reduced by the amount of long- term capital gains referred to in section 112A(1) as if the total income so reduced were the total income of the assessee.

However, in the case of an individual or a Hindu undivided family, being a resident, where the total income as reduced by such long-term capital gains is below the maximum amount which is not chargeable to income-tax, then, the long-term capital gains, for the purposes of clause (i), shall be reduced by the amount by which the total income as so reduced falls short of the maximum amount which is not chargeable to income-tax.

(3) Condition of Payment of STT Not Applicable in case of Transaction Undertaken on a Recognised Stock Exchange located in any International Financial Services Centre [Section 112A(3)]:

The condition relating to the payment of STT specified in section 11 2A( 1 )(iii) above shall not apply to a transfer undertaken on a recognised stock exchange located in any International Financial Services Centre and where the consideration for such transfer is received or receivable in foreign currency.

Similarly, the requirement of payment of STT at the time of transfer of long-term capital asset, being a unit of equity oriented fund or a unit of business trust, shall not apply if the transfer is undertaken on recognized stock exchange located in any International Financial Services Centre (IFSC) and the consideration of such transfer is received or receivable in foreign currency.

(4)  The Government may issue a Notification Exempting the requirement of Payment of STT at the time of Acquisition of Equity Shares [Section 112A(4):

The Central Government may, by notification in the Official Gazette, specify the nature of acquisition in respect of which the provisions of section 112A(1)(iii)(a) above shall not apply.

Thus, section 112A(4) empowers the Central Government to specify by notification the nature of acquisitions in respect of which the requirement of payment of securities transaction tax shall not apply in the case of equity share in a company.

(5)  Deduction under Chapter V1-A (Sections 80C to 80U) Not to be Allowed from such Long- Term Capital Gain [Section 112A(5)]:

Where the gross total income of an assessee includes any long-term capital gains referred to in section 1 12A(1), the deduction under Chapter V1-A shall be allowed from the gross total income as reduced by such capital gains.

In other words, deduction under Chapter VT-A (Sections 80C to 80U) shall not be allowed from such long-term capital gain.

(6)  Rebate of Tax under Section 87A not to be Allowed from the Tax Payable on such Long- Term Capital Gain [Section 112A(6)]:

Where the total income of an assessee includes any long-term capital gains referred to in section 112A(1), the rebate under section 87A (of Rs. 12,500) shall be allowed from the income-tax on the total income as reduced by tax payable on such capital gains.

In other words, rebate of tax shall not be allowed from the tax payable on such long-term capital gain.