Section 112A of ITA, 1961 : Section 112A: Tax On Long-Term Capital Gains In Certain Cases

Explanation using Example

Imagine Mr. Sharma, a resident individual, sold his shares in a listed company on a recognized stock exchange in December 2022. He had purchased these shares in June 2015, making them long-term capital assets. On selling these shares, he made a long-term capital gain (LTCG) of ₹3,00,000. Since Securities Transaction Tax (STT) was paid on both acquisition and transfer of these shares, his gains are subject to taxation under Section 112A of the Income Tax Act, 1961.

According to Section 112A, Mr. Sharma's tax liability on LTCG would be calculated as follows:

1. First, since his LTCG is more than ₹1,00,000, the amount subject to tax is ₹2,00,000 (₹3,00,000 - ₹1,00,000 exemption limit).
2. The tax on the taxable LTCG is 10%, so Mr. Sharma will owe ₹20,000 (10% of ₹2,00,000).

If Mr. Sharma's total income excluding LTCG is below the taxable threshold, the taxable LTCG can be reduced by the shortfall amount to further lower the tax liability.