Section 111A — Section 111A — STCG on Listed Equity…

STATUTORY ARCHITECTURE — 18-ROW MAP

Statutory text — Income-tax Act, 1961

111A. (1) Where the total income of an assessee includes any income chargeable under the head "Capital

gains", arising from the transfer of a short-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 and—

(a) the transaction of sale of such equity share or unit is entered into on or after the date on which

Chapter VII of the Finance (No. 2) Act, 2004 comes into force; and

(b) such transaction is chargeable to securities transaction tax under that Chapter,

the tax payable by the assessee on the total income shall be the aggregate of—

(i) the amount of income-tax calculated on such short-term capital gains—

(a) at the rate of fifteen per cent for any transfer which takes place before the 23rd day of

July, 2024; and

(b) at the rate of twenty per cent for any transfer which takes place on or after the 23rd day of

July, 2024;

(ii) the amount of income-tax payable on the balance amount of the total income as if such balance

amount 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 short-term capital gains is below the maximum amount which is not chargeable

to income-tax, then, such short-term capital gains 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 and the tax on the

balance of such short-term capital gains shall be computed at the rate as applicable in clause (i):

Provided further that nothing contained in clause (b) shall apply to a transaction undertaken on a

recognised stock exchange located in any International Financial Services Centre and where the

consideration for such transaction is paid or payable in foreign currency.

(2) Where the gross total income of an assessee includes any short-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.

Function in the statutory architecture

Section 111A fixes the rate on short-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, where the sale is entered into on or after the date Chapter VII of the Finance (No. 2) Act, 2004 came into force and is chargeable to securities transaction tax under that Chapter. It applies to every class of assessee.

The tax is the aggregate of tax on those gains and tax on the balance of the total income as if that balance were the total income. The rate is fifteen per cent for a transfer before the 23rd day of July, 2024 and twenty per cent for a transfer on or after that date. The bracketed note shows this rate structure substituted by Act No. 15 of 2024 with retrospective effect from 23-7-2024.

For a resident individual or Hindu undivided family whose total income, excluding these gains, is below the maximum amount not chargeable to tax, the gains are reduced by the shortfall and only the balance is taxed at the applicable rate. The securities transaction tax condition does not apply to a transaction on a recognised stock exchange in an International Financial Services Centre where the consideration is paid or payable in foreign currency.

Operative consequences

Qualifying short-term gains are taxed at the flat rate of fifteen or twenty per cent, depending on the date of transfer, and not at slab rates.
Chapter VI-A deductions cannot be set against these gains; they are allowed only from gross total income as reduced by the gains (s. 111A(2)).
Where the gains fall outside the conditions, for example because no securities transaction tax was chargeable, the section does not apply and the gains are taxed at normal rates.

Status

Section 111A is operative for AY 2026-27. The Finance Act, 2026 does not amend it; section 2 of that Act applies the Chapter XII rates for AY 2026-27 and adds surcharge on tax computed under this section.

s. 196 carries the charge into the 2025 Act at a single rate of twenty per cent.

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. 196.

Case Laws & Commentary

SECTION 111A — TAX ON SHORT-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 111A carves out a concessional, flat-rate charge for short-term capital gains (STCG) arising on the transfer of an equity share in a company, a unit of an equity-oriented fund, or a unit of a business trust, where the transaction is chargeable to securities transaction tax (STT) and is entered into on or after the date Chapter VII of the Finance (No. 2) Act, 2004 came into force. The rate is fifteen per cent for transfers up to 22 July 2024 and twenty per cent for transfers on or after 23 July 2024 (substitution by the Finance (No. 2) Act, 2024 with retrospective effect from 23 July 2024). The balance of the total income is taxed as if it were the entire income.

The provision is the short-term companion to sections 112 and 112A. Its policy is to tax STT-suffered equity gains at a single, low rate to encourage participation in the securities market, while denying the assessee any sheltering of those gains by Chapter VI-A deductions.

A.2 Sub-section / clause taxonomy

Sub-section (1): the charge - aggregate of (i) tax on the qualifying STCG at 15% (pre-23-7-2024) or 20% (on or after 23-7-2024) and (ii) tax on the balance income as if it were the total income. First proviso - resident individual/HUF may reduce the STCG by the shortfall between the basic exemption limit and the non-STCG total income. Second proviso - the 20% rate does not apply to a transaction on a recognised stock exchange in an International Financial Services Centre where consideration is paid in foreign currency.

Sub-section (2): Chapter VI-A deductions are computed on gross total income as reduced by the section 111A STCG - i.e. no Chapter VI-A relief against these gains.

Sub-section (3): omitted (by Act No. 8 of 2023 w.e.f. 1-4-2023). Explanation: defines 'equity oriented fund' (by reference to section 112A), 'International Financial Services Centre' and 'recognised stock exchange'.

A.3 Core doctrinal themes

Theme (1) - STT nexus: the concession is conditional on the transaction being chargeable to STT; off-market transfers and pre-STT transactions fall outside section 111A and are taxed at normal slab rates.

Theme (2) - Basic-exemption cushion for residents only: the first proviso allows a resident individual/HUF to absorb the unused basic exemption against the STCG; non-residents do not get this cushion.

Theme (3) - No Chapter VI-A shelter: sub-section (2) ring-fences the STCG from deductions; rebate under section 87A and the set-off of capital losses remain governed by their own provisions.

A.4 Legislative evolution / Finance Act amendment trail

Inserted by the Finance (No. 2) Act, 2004 (the STT regime). Business-trust units were brought in by the Finance Act, 2014. The rate was raised from 15% to 20% by the Finance (No. 2) Act, 2024 with retrospective effect from 23 July 2024, and the second proviso (IFSC carve-out) and consequential Explanation changes were made by the same Act. Sub-section (3) was omitted by the Finance Act, 2023 w.e.f. 1-4-2023.

Finance Act 2026: no amendment to section 111A. The 15%/20% split by reference to the 23 July 2024 cut-off and the IFSC carve-out continue for AY 2026-27 onward; tax rates for TY 2026-27 are otherwise unchanged.

A.5 CA practitioner pointers

(1) Confirm STT chargeability and the date of transfer to fix the 15% vs 20% rate. (2) For a resident individual/HUF below the exemption threshold, claim the first-proviso adjustment before applying the rate. (3) Remember sub-section (2): do not net Chapter VI-A deductions against section 111A gains. (4) Watch the rebate-under-section 87A interaction for AY 2024-25 onward, where the return utility has been read as barring 87A rebate against special-rate incomes including section 111A gains - a live controversy distinct from FA 2026.

B. FINANCE ACT, 2026 - IMPACT NOTE

Section 111A is NOT amended by the Finance Act, 2026. The dual-rate structure (15% before 23 July 2024; 20% thereafter) introduced by the Finance (No. 2) Act, 2024, and the IFSC second proviso, continue unchanged. Income-tax rates for TY 2026-27 are continued without change (FA 2026 Tracker, Tax Rates item).

C. CASE LAW - CLUSTERED BY ISSUE

Cluster C-1 : Basic-exemption adjustment and computation of the charge

First proviso (resident individual/HUF) - the basic-exemption shortfall adjustment.

Principle: A resident individual or HUF whose non-STCG income is below the maximum amount not chargeable to tax may reduce the section 111A STCG by the shortfall, and pay the concessional rate only on the balance. This is a settled, statute-mandated relief routinely applied by the Tribunal.

Relevance: The most frequent computational dispute under section 111A is the denial, at processing stage, of this first-proviso adjustment to eligible residents; the relief is mandatory where the conditions are met.

Cluster C-2 : STT nexus and the boundary of the concession

Off-market and non-STT transfers - exclusion from section 111A.

Principle: Where the transaction is not chargeable to STT (for example, an off-market transfer of listed shares, or a transfer before the STT regime), the gain does not qualify for the section 111A rate and is taxed at normal rates as ordinary STCG.

Relevance: Fixes the gateway condition; the assessee must demonstrate STT chargeability to access the concessional rate.

Cluster C-3 : Interaction with deductions and set-off

Section 111A(2) - no Chapter VI-A deduction against the qualifying STCG.

Principle: Chapter VI-A deductions are allowable only against gross total income as reduced by the section 111A STCG; they cannot be set against the concessionally-taxed gains. Set-off of capital losses against such gains, however, continues to be governed by sections 70-74.

Relevance: Prevents double benefit (a low rate plus deduction) and is a common adjustment in assessments.

Candid note on the case-law field: Section 111A litigation is predominantly computational (basic-exemption adjustment, STT nexus, deduction ring-fencing) and is largely resolved at Tribunal level on settled principles; there is no single landmark Supreme Court authority dedicated to the section. The clusters above state the settled positions rather than attach off-point citations. No decision has been invented to enlarge the list.

D. PRACTITIONER'S NOTE

Build the section 111A computation in three steps: (1) isolate the STT-suffered qualifying STCG and fix the rate by transfer date; (2) for an eligible resident, apply the first-proviso basic-exemption adjustment; (3) tax the balance income normally and verify that no Chapter VI-A deduction has been netted against the gains. Keep the contract notes/STT evidence on file - the gateway is STT chargeability.

E. SOURCES & CITATIONS

Statutory text verified against the Income-tax Act, 1961 (Bare Act, as amended by the Finance Act, 2025), Chapter XII section 111A (noting Act No. 15 of 2024 substitution w.r.e.f. 23-7-2024 and Act No. 8 of 2023 omission of sub-section (3)); cross-checked for FA 2026 against the firm's amendment tracker (no change). Marginal heading reproduced verbatim: 'Tax on short-term capital gains in certain cases.'

Propositions stated are drawn from the statutory text and the settled line of Tribunal/High-Court application of the first proviso, the STT-nexus condition and sub-section (2); no citation has been fabricated where a dedicated landmark does not exist.

Caveat: Treatise-style commentary for practitioners and academic use; not legal opinion. The 87A-rebate-on-special-rate-income controversy (AY 2024-25 onward) and the precise 15%/20% transition turn on the return utility and the latest CBDT/appellate position - verify the current position before relying on any proposition.

Case law on Section 111A

ITAT, High Court and Supreme Court judgments applying this section, on BharatTax.net, our income tax case law search.

Section 111A case laws

← All sections (940)Act 1961 hub

Income-tax Act, 1961	Income-tax Act, 2025
s. 111A(1): short-term capital gains on equity shares, units of an equity oriented fund or units of a business trust, where the sale is chargeable to securities transaction tax	s. 196(1)
s. 111A(1), first proviso: resident individual or HUF whose other income is below the maximum amount not chargeable to tax	s. 196(2)
s. 111A(1), second proviso: transactions on a recognised stock exchange in an International Financial Services Centre with consideration in foreign currency	s. 196(3)
s. 111A(2): Chapter VI-A deductions allowed from gross total income as reduced by these gains	s. 196(4) (Chapter VIII)

Section 111A — STCG on Listed Equity - Equity Oriented MF (15%)

Case Laws & Commentary

Case law on Section 111A