Section 112 — LTCG on Capital Assets (Other Than Listed Equity)

Case Laws & Commentary

SECTION 112 — TAX ON LONG-TERM CAPITAL GAINS

Case Laws & Commentary (Income-tax Act, 1961 as amended by Finance Act, 2026)

A. SECTION COMMENTARY

A.1 Structural position & legislative purpose

Section 112 is the general charging provision for long-term capital gains (LTCG) not covered by the equity-specific section 112A. Where the total income includes income arising from the transfer of a long-term capital asset chargeable under the head 'Capital gains', the tax payable is the aggregate of tax on the LTCG at the rates prescribed in section 112(1)(a) to (d) for the various classes of assessee, plus tax on the balance income as if it were the total income. The classic structure taxed LTCG at twenty per cent (with the indexation benefit of the second proviso to section 48), subject to the proviso that, for listed securities, units and zero-coupon bonds, where the 20%-with-indexation figure exceeded ten per cent of the gain computed without indexation, the excess was to be ignored (the 10%-without-indexation option).

The Finance (No. 2) Act, 2024 recalibrated the regime with effect from 23 July 2024, moving to a single lower rate of 12.5% without indexation for most long-term assets, while preserving, for resident individuals and HUFs, a roll-over option for land or building acquired before 23 July 2024 (the lower of 12.5% without indexation or 20% with indexation, the excess being ignored under the second proviso to s.112(1)(a)). Section 112(1)(c)(iii) separately fixes the rate for non-residents on unlisted securities and shares at 10 per cent for transfers before 23 July 2024 and 12.5 per cent for transfers on or after that date, computed without the first and second provisos to section 48 (no foreign-exchange or indexation benefit).

A.2 Sub-section / clause taxonomy

Sub-section (1)(a): resident individual/HUF; (b) domestic company; (c) non-resident (not a company)/foreign company, including clause (c)(iii) for unlisted securities at 10 per cent (transfers before 23-7-2024) or 12.5 per cent (on or after 23-7-2024) without section 48 provisos; (d) any other resident - each fixing the LTCG rate and the 'balance income taxed as total income' formula.

Proviso (pre-23-7-2024 regime, listed securities other than a unit, and zero-coupon bonds): the 10%-without-indexation cap. Sub-section (2): Chapter VI-A deductions not allowed against the LTCG. The Explanation to sub-section (1) defines 'securities', 'listed securities' and 'unlisted securities'; sub-section (3) has been omitted (Act No. 8 of 2023, w.e.f. 1-4-2023).

A.3 Core doctrinal themes

Theme (1) - Indexation vs flat low rate: the historical bargain offered the taxpayer the better of 20%-with-indexation or 10%-without-indexation for listed securities/units; the 2024 amendment generally replaces this with a flat 12.5% without indexation, with a transitional roll-over for pre-23-7-2024 land/building held by resident individuals/HUF.

Theme (2) - Non-resident on unlisted shares: section 112(1)(c)(iii) overrides the general section 48 computation, denying both indexation and the first-proviso foreign-exchange protection, and fixes a rate of 10 per cent for transfers before 23 July 2024 and 12.5 per cent for transfers on or after that date - a deliberate, self-contained code for that class.

Theme (3) - The proviso benefit reaches non-residents: courts have read the (erstwhile) proviso to section 112(1) as available to non-residents holding listed securities, rejecting the Revenue's attempt to confine it to residents.

Theme (4) - No Chapter VI-A shelter: sub-section (2) ring-fences LTCG from Chapter VI-A deductions, mirroring section 111A(2).

A.4 Legislative evolution / Finance Act amendment trail

Section 112 has been repeatedly recalibrated: the 10%-without-indexation proviso for listed securities (Finance Act, 1999/2000 line), the 10% rate for unlisted securities of non-residents read in by judicial decision and then codified as section 112(1)(c)(iii) (Finance Act, 2012), and the comprehensive 2024 overhaul (Finance (No. 2) Act, 2024) moving to 12.5% without indexation w.e.f. 23 July 2024 with the resident land/building roll-over. Section 112A (introduced FA 2018) hived off STT-suffered equity LTCG into a separate code.

Finance Act 2026: no amendment to section 112. The post-23-July-2024 structure (12.5% without indexation; resident roll-over for pre-cut-off land/building; 12.5 per cent for non-resident unlisted shares under clause (c)(iii)) continues up to AY 2026-27.

A.5 CA practitioner pointers

(1) Fix the transfer date against 23 July 2024 to choose the applicable regime; for resident individuals/HUF transferring pre-cut-off land or building, compute both the 12.5%-without-indexation and the 20%-with-indexation figures and adopt the lower. (2) For non-residents on unlisted shares, apply section 112(1)(c)(iii) (10 per cent for transfers before 23 July 2024, 12.5 per cent on or after; no section 48 provisos) - do not give indexation or forex benefit. (3) For non-residents on listed securities transferred before 23 July 2024, the lower-rate benefit under the proviso line is available (Cairn UK Holdings). (4) Do not net Chapter VI-A deductions against LTCG (sub-section (2)).

B. FINANCE ACT, 2026 - IMPACT NOTE

Section 112 is NOT amended by the Finance Act, 2026. The regime as recast by the Finance (No. 2) Act, 2024 (12.5% without indexation from 23 July 2024; resident individual/HUF roll-over for land/building acquired before that date; 12.5 per cent for non-residents on unlisted shares under clause (c)(iii) for transfers on or after that date) continues unchanged up to AY 2026-27. Tax rates for TY 2026-27 are otherwise continued without change.

C. CASE LAW - CLUSTERED BY ISSUE

Cluster C-1 : Availability of the lower-rate proviso to non-residents (listed securities)

Cairn UK Holdings Ltd. v. DIT (2013) 359 ITR 268 (Delhi).

Facts: A non-resident company derived long-term capital gains on the transfer of listed shares and claimed the benefit of the (then) proviso to section 112(1), taxing the gain at 10% without indexation. The Revenue contended that the proviso was available only to assessees entitled to indexation under the second proviso to section 48, and hence not to a non-resident.

Issue: Whether the proviso to section 112(1) (10% without indexation) is available to a non-resident who is not entitled to the indexation benefit under the second proviso to section 48.

Held: The Delhi High Court held that the proviso to section 112(1) is available to a non-resident; it does not stipulate that only an assessee entitled to indexation may claim the lower 10% rate. The benefit cannot be denied merely because the non-resident is outside the indexation mechanism.

Ratio: The lower-rate proviso operates as an independent cap on tax for the specified securities; eligibility for indexation is not a condition for claiming the 10% rate. A construction that denied the benefit to non-residents would defeat the proviso's purpose.

Relevance: The leading authority on the reach of the section 112(1) lower-rate proviso to non-residents holding listed securities; routinely applied in cross-border capital-gains advisory and pre-2024 transactions.

Cluster C-2 : Self-contained code for non-residents on unlisted shares - clause (c)(iii)

Legatum Ventures Ltd. v. ACIT (ITAT Mumbai) and the section 112(1)(c)(iii) line.

Facts: A non-resident transferred unlisted shares and sought to compute the gain in foreign currency under the first proviso to section 48 while paying tax at 10% under section 112(1)(c)(iii).

Issue: Whether a non-resident taxed under section 112(1)(c)(iii) on unlisted shares may also avail the first-proviso (foreign-exchange) computation of section 48.

Held: The Tribunal held that section 112(1)(c)(iii) is a self-contained charging mechanism that expressly computes the gain without giving effect to the first and second provisos to section 48; the non-resident cannot claim the forex-fluctuation benefit while also taking the 10% rate.

Ratio: Clause (c)(iii) overrides the general section 48 computation for non-residents on unlisted shares; the 10% rate and the denial of section 48 provisos are a package and cannot be unbundled.

Relevance: Settles the computation for the common private-equity exit - non-resident sale of unlisted Indian company shares - confirming 10 per cent on the rupee gain without forex protection for transfers before 23 July 2024 (12.5 per cent for transfers on or after that date).

Cluster C-3 : Capital-gains machinery foundation

CIT v. B.C. Srinivasa Setty (1981) 128 ITR 294 (SC).

Facts: The question was whether capital gains could be charged on the transfer of an asset (goodwill) the cost of acquisition of which could not be conceived.

Issue: Whether the capital-gains charge applies where the computation machinery (cost of acquisition) fails.

Held: The Supreme Court held that the charging section and the computation provisions together constitute an integrated code; if the computation machinery cannot apply, the charge itself fails.

Ratio: Charge and computation are integral; section 112 presupposes a computable long-term capital gain under sections 45-48 before its rate provisions engage.

Relevance: The foundational authority underpinning every section 112 computation - the gain must first be computable under the capital-gains code before the section 112 rates apply.

D. PRACTITIONER'S NOTE

Section 112 is now a two-era provision: pre and post 23 July 2024. For each LTCG, fix the date, classify the asset and the assessee, and select the rate - for resident individuals/HUF on pre-cut-off land/building, run the dual computation and adopt the lower; for non-residents on unlisted shares, apply clause (c)(iii) (10 per cent before 23 July 2024, 12.5 per cent on or after; no section 48 provisos); for non-residents on listed securities transferred before 23 July 2024, the lower-rate proviso line (Cairn UK Holdings) governs. Confirm computability of the gain under sections 45-48 (B.C. Srinivasa Setty) and never net Chapter VI-A deductions against the gain.

E. SOURCES & CITATIONS

Caveat: Treatise-style commentary for practitioners and academic use; not legal opinion. The post-23-July-2024 rate architecture is recent and the resident roll-over option is fact-sensitive; verify the current statutory text, CBDT clarifications and the latest appellate position before relying on any proposition in advisory work or litigation.