This article is going to be helpful for taxpayers confused about the provisions under Sections 111A, 112, and 112A of the Income Tax Act, 1961 regarding the capital gains taxes of Shares, Debentures, Mutual Funds, and other types of movable and immovable properties.
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Section 111A Under Income Tax Act
Under Section 111A, an assessee is required to file a tax at the rate of 15% on the capital gained by him on short-term capital assets defined under Section 2 (42A) of the Income Tax Act, 1961. The listed securities on which Securities Transaction Tax is applicable come under this section like listed equity shares, listed mutual funds and listed units of business trusts.
The benefits of the slabs do not apply to the Non-Residents of India (NRIs). The deductions under Section VI-A are not provided under Section 111A.
Section 111A Exceptions
- Shares listed in the recognized Stock Exchange in the International Financial Service Center (IFSC) as Securities Transaction Tax (STT) are not charged on the transfer of such securities.
- If the assessee held the securities as stock in trade on business
- Foreign Institutional Investors (FII) are also not included as the securities held by them are indeed Capital Assets and there is no requirement of proving the same.
Remember the Points
Suppose the total income and STCG (short-term capital gain) after all the related tax deductions would be less than Rs 2.5 lakh. In that case, you must be secured with no tax load and no liability beneath section 111A, as the deductions up to the basic tax exemption amount would be permitted.
If the total income along with the STCG would be more than Rs 2.5 lakhs, you will be imposed a flat rate of 15% on STCG. But if the total income would be less than 5 lakhs, a reimbursement of up to Rs 12500 of the tax liability would be available beneath the present income tax regime.
Section 112 of the Income Tax Act
Under Section 112 of the Income Tax Act, an assessee is required to pay a tax at the rate of 20% or 10% after and before indexation respectively on the capital gained by him on long-term capital assets defined under Section 2 (29A) of the IT Act, 1961. All the securities whether listed or not whether listed or not and whether its shares, debentures, or units of a business trust and any other movable and immovable property are applicable under this section.
The deductions under Section VI-A are not provided under Section 112.
Section 112 Exceptions
- If Section 112A is applicable then Section 112 does not imply
- Not applicable to Non-Residents of India (NRIs)
Section 112A of the Income Tax Act
Under Section 112A the assessees are liable to pay a tax at the rate of 10% on the capital gained on the long-term capital assets being an equity share in a company or a unit of an equity-oriented fund or a unit of a business trust which attracts Securities Transaction Tax (STT), if the value of gains amounts to be more than INR 1,00,000. All the securities, which attract STT a unit of equity-oriented fund, or units of a business trust are applicable under this section.
The deductions under Section VI-A are not provided under Section 112A. Exceptions under Section 10(38) are not available if the provisions under the same are not fulfilled. Provisions 1 and 2 of Section 48 are not applicable.
Section 112A Exceptions
- If Section 112 is applicable then Section 112A does not imply
- Not applicable to Non-Residents of India (NRIs)
- Shares listed in the recognized Stock Exchange in the International Financial Service Center (IFSC) as Securities Transaction Tax (STT) are not charged on the transfer of such securities
- If assessees held securities as stock in trade for business
- Foreign Institutional Investors (FII) are also not included as the securities held by them are indeed Capital Assets and there is no requirement of proving the same.
Acquisition Cost (Capital Gains on or before 31 Jan 2018)
For the calculation of tax on the cost of acquisition, the values taken should be higher than, the actual cost of acquisition and lower than the financial market value of the asset and the sales consideration. The tax applies to the gains amounting above INR 1,00,000 at the rate of 10% and no tax below that.
For example, if the actual cost of acquisition is INR 5,00,000 Sales consideration is INR 6,00,000 and the financial market value of the asset is INR 5,50,000 then,
- Step 1- Lower FMV and sales consideration, that is, 5,50,000 is taken
- Step 2- The Value taken is compared with the actual cost of acquisition and the higher actual or value taken, that is, 5,50,000 is taken for the calculation
- Step 3- Calculation of Taxable Capital Gain: 6,00,000 minus 5,50,000 which is 50,000, so 50,000 will be taxable capital gain
- Step 4- Calculation of Tax Liability: 10% of capital gain, that is, 10% of 50,000 equals to INR 5,000
Note: According to Section 70 to Section 80, the losses under this section can be carried forward and set off accordingly and the remaining balance will be taxable.
Adjustment for Rs 1,00,000 Exemption
LTCG beneath section 112A with 10% would be calculated on the gains over Rs 1 lac.
CBDT said that in the FAQ section, the amount of Rs 1 lac would not be diminished from the total amount of the capital gains as the same would get deducted automatically through the software of the tax calculator.
Under section 112A of the Income Tax Act, the advantages conditions are
The below-mentioned conditions should be attained to take advantage of the reduced rate beneath section 112A of the Income Tax Act.
- Upon the acquisition and transfer of the firm’s equity stake, the securities transaction tax (STT) was furnished.
- For the units of the equity-oriented fund or units of a business trust, the STT was furnished during the time of disposal of the asset.
- Long-term capital assets must be securities.
- These long-term capital gains would not be entitled to the deduction beneath Chapter VI A.
- Section 87A reimbursement could not be utilized to offset the tax left on the long-term capital gains beneath section 112A.
Income Tax Section 111A Vs 112A
| Section 111A under the Income Tax Act | Section 112A under the Income Tax Act |
|---|---|
| Section 111A is for Short-Term Capital Gains (STCG). | Section 112A is for Long Term Capital Gain (LTCG). |
| As Per Section 11A STCG is taxed at 15% | As per Section 112A, LTCG is taxed at 10% |
| When the total income post to all the related tax deductions along with STCG (short-term capital gain) would be less than Rs 2.5 lakh then have no load and liability under section 111A) | Rs 1 lakh will be the LTCG exemption limit that is rendered if the gain surpasses Rs 1 lakh then only a 10% tax rate would be applicable under section 112A of the income tax act. |
| No provision for the offset of the short-term capital losses would be furnished under section 111A of the Income Tax Act. | For 8 years complying with the assessment year where you made the loss, you could carry forward the long-term capital loss which you could not set off. |
