Section 112A — LTCG on Listed Equity

STATUTORY ARCHITECTURE — 18-ROW MAP

Statutory text — Income-tax Act, 1961

Tax on long-term capital gains in certain cases.

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 sub-section (2), if—

(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;

(iii) securities transaction tax under Chapter VII of the Finance (No. 2) Act, 2004 (23 of 2004) has,—

(a) in a case where the long-term capital asset is in the nature of an equity share in a company,

been paid on acquisition and transfer of such capital asset; or

(b) 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, been paid on transfer of such capital asset.

(2) The tax payable by the assessee on the total income referred to in sub-section (1) shall be the aggregate

of—

²¹[(i) the amount of income-tax calculated on such long-term capital gains exceeding one lakh

twenty-five thousand rupees—

(a) on long-term capital gains at the rate of ten per cent for any transfer which takes place

before the 23rd day of July, 2024; and

(b) on long-term capital gains, at the rate of twelve and one-half per cent for any transfer

which takes place on or after the 23rd day of July, 2024:

Provided that the limit of one lakh twenty-five thousand rupees shall apply on aggregate of the

long-term capital gains under sub-clauses (a) and (b);]

(ii) the amount of income-tax payable on the total income as reduced by the amount of long-term

capital gains referred to in sub-section (1) as if the total income so reduced were the total income

of the assessee:

Provided that 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) The condition specified in clause (iii) of sub-section (1) 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.

(4) The Central Government may, by notification in the Official Gazette, specify the nature of acquisition in

respect of which the provisions of sub-clause (a) of clause (iii) of sub-section (1) shall not apply.

(5) Where the gross total income of an assessee includes any long-term capital gains referred to in

sub-section (1), the deduction under Chapter VI-A shall be allowed from the gross total income as reduced

by such capital gains.

(6) Where the total income of an assessee includes any long-term capital gains referred to in sub-section (1),

the rebate under section 87A shall be allowed from the income-tax on the total income as reduced by tax

payable on such capital gains.

Explanation.—For the purposes of this section,—

(a) "equity oriented fund" means a fund set up under a scheme of a mutual fund specified under clause

(23D) of section 10 or under a scheme of an insurance company comprising unit linked insurance

policies to which exemption under clause (10D) of the said section does not apply 22-23[on account

of the applicability of the fourth and fifth provisos thereof] and,—

(i) in a case where the fund invests in the units of another fund which is traded on a

recognised stock exchange,—

(A) a minimum of ninety per cent of the total proceeds of such fund is invested in the

units of such other fund; and

(B) such other fund also invests a minimum of ninety per cent of its total proceeds in

the equity shares of domestic companies listed on a recognised stock exchange;

and

(ii) in any other case, a minimum of sixty-five per cent of the total proceeds of such fund is

invested in the equity shares of domestic companies listed on a recognised stock exchange:

Provided that the percentage of equity shareholding or unit held in respect of the fund, as the case

may be, shall be computed with reference to the annual average of the monthly averages of the

opening and closing figures:

Provided further that in case of a scheme of an insurance company comprising unit linked

insurance policies to which exemption under clause (10D) of section 10 does not apply 22-23[on

account of the applicability of the fourth and fifth provisos thereof], the minimum requirement of

ninety per cent or sixty-five per cent, as the case may be, is required to be satisfied throughout the

term of such insurance policy;

(b) "International Financial Services Centre" shall have the meaning assigned to it in clause (q) of

section 2 of the Special Economic Zones Act, 2005 (28 of 2005);

(c) "recognised stock exchange" shall have the meaning assigned to it in clause (ii) of Explanation 1 to

clause (5) of section 43.

Notes

21. Sub. by Act No. of 15 of 2024, w.r.e.f. 23-7-2024.

22-23. Words "on account of the applicability of the fourth and fifth provisos thereof" shall be Omtt. by Act No. 7 of 2025, w.e.f. 1-4-2026.

Function in the statutory architecture

Section 112A overrides s. 112 for long-term capital gains from the transfer of an equity share in a company, a unit of an equity oriented fund or a unit of a business trust. Securities transaction tax must have been paid on both acquisition and transfer of an equity share, and on transfer of a unit. The condition on acquisition does not apply to acquisitions the Central Government notifies under sub-section (4).

Tax is charged on the gains "exceeding one lakh twenty-five thousand rupees": at ten per cent for a transfer before the 23rd day of July, 2024 and at twelve and one-half per cent for a transfer on or after that date. The limit applies to the aggregate of gains in both periods. The bracketed note reads "Sub. by Act No. of 15 of 2024, w.r.e.f. 23-7-2024". The balance of the total income is taxed as if it were the total income.

An equity oriented fund is one that invests at least sixty-five per cent of its total proceeds in equity shares of listed domestic companies, or ninety per cent in a fund-of-funds structure. For AY 2026-27 the definition reads without the words "on account of the applicability of the fourth and fifth provisos thereof", which are "Omtt. by Act No. 7 of 2025, w.e.f. 1-4-2026". The cost of acquisition of such assets acquired before 1 February 2018 is governed by s. 55(2)(ac), not by this section; its 2025 counterpart is s. 90(7).

Operative consequences

Gains up to one lakh twenty-five thousand rupees in aggregate bear no tax under the section; only the excess is taxed at the special rate.
Chapter VI-A deductions are allowed only from gross total income as reduced by these gains (s. 112A(5)).
The rebate under s. 87A is allowed only against income-tax on total income as reduced by the tax payable on these gains (s. 112A(6)).

Status

Section 112A is operative for AY 2026-27. The Finance Act, 2026 does not amend it; section 2 of that Act adds surcharge on tax computed under this section. The only change shown for 2026-27 is the omission noted above, made by Act No. 7 of 2025.

s. 198 re-enacts the section at twelve and one-half per cent on gains exceeding Rs 1,25,000.

The 1961 Act governs AY 2026-27 and earlier assessment years; the Income-tax Act, 2025 governs tax year 2026-27 onwards. For this subject the 2025 Act provision is s. 198.

Case Laws & Commentary

SECTION 112A — TAX ON LONG-TERM CAPITAL GAINS IN CERTAIN CASES

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

A. SECTION COMMENTARY

A.1 Structural position & legislative purpose

Section 112A is the equity-specific long-term capital gains code, inserted by the Finance Act, 2018 with effect from assessment year 2019-20, simultaneously with the withdrawal of the section 10(38) exemption. Notwithstanding section 112, where the total income includes LTCG on the transfer of an equity share in a company, a unit of an equity-oriented fund, or a unit of a business trust, and STT has been paid (on acquisition and transfer for shares, on transfer for units, subject to notified exceptions), the tax on such gains exceeding the statutory threshold is charged at a concessional rate without the benefit of indexation or foreign-exchange computation.

The original design taxed the gains above Rs.1,00,000 at ten per cent. The Finance (No. 2) Act, 2024, with effect from 23 July 2024, raised the rate to 12.5% and lifted the exemption threshold to Rs.1,25,000. A grandfathering mechanism (the higher of actual cost or the lower of fair market value as on 31 January 2018 and the full value of consideration) protects gains that had accrued up to 31 January 2018, since the regime replaced a complete exemption.

A.2 Sub-section / clause taxonomy

Sub-section (1): the charge - tax at the concessional rate on LTCG exceeding the threshold, plus tax on the balance income as if it were the total income. Sub-section (2): conditions - STT to have been paid on acquisition (for equity shares) and on transfer, with notified exceptions (e.g. IPO/FPO acquisitions). Sub-sections (3)-(6): definitions ('equity oriented fund'), the no-Chapter VI-A-deduction and no-rebate-against-the-gains rules, and the resident basic-exemption adjustment. Explanation: grandfathering 'cost of acquisition' as on 31 January 2018.

A.3 Core doctrinal themes

Theme (1) - Threshold relief, not full exemption: only gains above Rs.1,00,000 (Rs.1,25,000 from 23-7-2024) are taxed; the threshold operates per assessee per year.

Theme (2) - Grandfathering of pre-1-February-2018 appreciation: because section 112A replaced the section 10(38) exemption, gains accrued up to 31 January 2018 are protected through the fair-market-value step-up, computed by the formula in the Explanation.

Theme (3) - STT gateway with carve-outs: STT chargeability on acquisition and transfer is the entry condition, subject to CBDT-notified exceptions for genuine cases (off-market acquisitions in IPO/FPO/bonus/rights and the like) where STT could not have been paid on acquisition.

Theme (4) - No indexation, no Chapter VI-A, restricted rebate: the gains are computed without indexation/forex, are outside Chapter VI-A, and the section 87A rebate is not available against them (a position reinforced by the return utility for AY 2024-25 onward).

A.4 Legislative evolution / Finance Act amendment trail

Inserted by the Finance Act, 2018 (w.e.f. AY 2019-20), replacing the section 10(38) exemption. The Finance (No. 2) Act, 2024 raised the rate from 10% to 12.5% and the threshold from Rs.1,00,000 to Rs.1,25,000 with effect from 23 July 2024. CBDT Notification No. 60/2018 prescribed the acquisition modes exempt from the STT-on-acquisition condition.

Finance Act 2026: no amendment to section 112A. The 12.5% rate and the Rs.1,25,000 threshold (from 23 July 2024), and the 31 January 2018 grandfathering, continue for AY 2026-27 onward.

A.5 CA practitioner pointers

(1) Apply the grandfathering formula carefully - cost is the higher of actual cost and the lower of (FMV on 31-1-2018) and (full value of consideration); the FMV for listed shares is the highest quoted price on 31 January 2018. (2) Fix the rate and threshold by transfer date (10%/Rs.1 lakh before 23-7-2024; 12.5%/Rs.1.25 lakh thereafter). (3) Verify STT chargeability or that the acquisition falls within a notified exception. (4) Do not claim indexation, Chapter VI-A deduction, or section 87A rebate against these gains.

B. FINANCE ACT, 2026 - IMPACT NOTE

Section 112A is NOT amended by the Finance Act, 2026. The concessional rate of 12.5% and the enhanced exemption threshold of Rs.1,25,000 (from 23 July 2024), and the 31 January 2018 grandfathering, continue unchanged for AY 2026-27 onward. Income-tax rates for TY 2026-27 are otherwise continued without change.

C. CASE LAW - CLUSTERED BY ISSUE

Cluster C-1 : Replacement of section 10(38) exemption and the grandfathering rationale

The legislative scheme: withdrawal of section 10(38) and the 31 January 2018 step-up.

Principle: Section 112A was enacted to tax, at a concessional rate, the equity LTCG that section 10(38) had previously exempted. To avoid taxing appreciation that accrued during the exemption era, the Explanation grandfathers the fair market value as on 31 January 2018, so that only post-31-January-2018 appreciation is effectively brought to tax.

Relevance: This rationale governs every grandfathering computation and is the touchstone for resolving disputes on the cost step-up; the protection is of accrued, not realised, pre-cut-off gains.

Cluster C-2 : STT gateway and notified exceptions

Section 112A(2) read with CBDT Notification No. 60/2018.

Principle: The concessional rate is conditional on STT having been paid; recognising that STT could not be paid on certain genuine acquisitions (IPO, FPO, bonus, rights, ESOP and the like), the CBDT notified the modes of acquisition exempt from the STT-on-acquisition requirement, while excluding tainted off-market acquisitions designed to launder unaccounted income.

Relevance: The gateway condition and its carve-outs are the principal area of section 112A dispute; the practitioner must map the acquisition mode against the notification.

Cluster C-3 : No rebate/deduction shelter against the gains

The no-Chapter VI-A and restricted-section-87A-rebate position.

Principle: Gains taxed under section 112A are computed without indexation, are outside Chapter VI-A, and the section 87A rebate is not available against the tax on such special-rate gains - the position taken by the income-tax return utility from AY 2024-25 and the subject of ongoing dispute.

Relevance: A recurring computational and rebate controversy at processing stage; the section's own text ring-fences the gains, and the 87A interaction remains contested before the appellate forums.

Candid note on the case-law field: Section 112A is a relatively recent provision (operative from AY 2019-20) and a substantial body of binding appellate authority is still developing; most controversy is computational (grandfathering, STT gateway, 87A rebate) rather than the subject of landmark rulings. The clusters above state the statutory scheme and the live controversies candidly, without attaching off-point citations or inventing authority.

D. PRACTITIONER'S NOTE

For each equity LTCG, run the section 112A checklist: STT/notified-exception gateway; grandfathered cost (higher of actual cost and the lower of 31-1-2018 FMV and sale consideration); rate and threshold by transfer date; and exclusion of indexation, Chapter VI-A and 87A rebate. Retain the 31 January 2018 price evidence and the acquisition-mode documentation - these are the two pressure points in any section 112A assessment.

E. SOURCES & CITATIONS

Section 112A is not amended by the Finance Act, 2026. Administrative material: CBDT Notification No. 60/2018 dated 1 October 2018 (acquisition modes exempt from the STT-on-acquisition condition).

Propositions are drawn from the statutory text, the Explanation (grandfathering) and the connected CBDT notification; given the recency of the provision, the candid position on the developing case-law field is stated rather than supported by off-point citations.

Caveat: Treatise-style commentary for practitioners and academic use; not legal opinion. The 12.5%/Rs.1.25 lakh figures apply from 23 July 2024 and the 87A-rebate interaction is contested; verify the current statutory text, CBDT notifications and the latest appellate position before relying on any proposition.

← ITA 1961 hub

Income-tax Act, 1961	Income-tax Act, 2025
s. 112A(1) and (2): long-term capital gains on equity shares, units of an equity oriented fund or units of a business trust where securities transaction tax has been paid	s. 198(1) and (2)
s. 112A(2), proviso: resident individual or HUF with income below the maximum amount not chargeable to tax	s. 198(3)
s. 112A(3) and (4): IFSC exception; notified modes of acquisition excluded from the condition in s. 112A(1)(iii)(a)	s. 198(4) and (5)
s. 112A(5) and (6): Chapter VI-A deductions and rebate under s. 87A	s. 198(6) and (7) (rebate under s. 156)

Section 112A — LTCG on Listed Equity - Equity-MF (12.5% on Excess  INR 1.25 Lakh)