Schedule 112A of the Income Tax Act requires individuals to report any capital gains from the sale of listed equity shares or units on a recognised stock exchange. This information must be included in the individual’s income tax return, along with details of any long-term or short-term capital gains.
The main objective of introducing this schedule is to improve transparency and enable the tax authorities to verify the reported capital gains. It will also help curb evading taxes by under-reporting or not reporting capital gains.
To ensure compliance, the stock exchange must furnish all investors’ transaction details to the Income Tax Department every quarter. The department will then match the details furnished by the taxpayer with the pieces received from the stock exchange. In case of any discrepancy, the taxpayer will be liable to pay interest and penalties as prescribed under the Income Tax Act.
Introduction To Section 112A
Section 112A provides for long-term capital gains(LTCG) tax on the sale of listed equity shares, equity-oriented mutual funds and business trust. The rate of long-term capital gains tax on these listed securities is 10% for gains exceeding the threshold of Rs 1 lakh.
The ITR forms contain schedule 112A to fill in scrip-wise details of these listed securities sold during a financial year. A taxpayer having long-term capital gains under the grandfathering provisions of section 112A should mandatorily fill the details in schedule 112A.Section 112A was inserted by the Finance Act 2018 to tax long-term capital gains from the sale of listed equity shares, units of equity-oriented mutual funds and units of business trust. Schedule 112A brought to tax gains which were earlier exempt until FY 2017-18 (AY 2018-19). Earlier, section 10(38) allowed a capital gains exemption from the sale of listed equity shares, units of mutual funds and business trust.
Scope Of Section 112A
- The sale should be of listed equity shares, units of a equity-oriented mutual fund and units of a business trust.
- The securities should be long-term capital assets (Holding period greater than 1 year).
- The transactions of purchase and sale of equity share are subject to STT (Securities Transaction Tax). In the case of equity-oriented mutual fund units or business trust, the transaction of the sale is liable to STT.
- Deduction under Chapter VI-A cannot be availed in respect of such gains
- Rebate under Section 87A cannot be claimed from these gains
Grandfathering Provisions Under Section 112A
The Finance Act 2018 introduced the grandfathering provisions to exempt long-term capital gains earned until 31 January 2018. In the case of specified securities bought before 1 February 2018, for calculating the cost of acquisition, we first take the lower of fair market value as of 31 January 2018 and the sale consideration. Then, we compare the result with the purchase price and take the higher of the two.
Long-term Capital Gains Under Section 112A
The tax under Section 112A is only on long-term capital gains(LTCG). The period of holding should be more than one year to qualify for taxation under section 112A. The tax rate is 10% above a threshold exemption of Rs 1 lakh. This means the long-term capital gains covered under section 112A are not taxable up to Rs 1 lakh per financial year. The gains exceeding Rs 1 lakh are liable to tax at 10% plus education cess and applicable surcharge. However, with effect from 23rd July the limit on the exemption of Long-Term Capital Gains on the transfer of equity shares or equity-oriented units or units of Business Trust has increased from Rs.1 Lakh to Rs.1.25 lakh per year. However, the rate at which it is taxed has increased from 10% to 12.5%.
Set-Off Long-Term Capital Loss From Long-Term Capital Gain
The loss, if any, upon the sale of long-term listed equity shares or units mentioned above is a long-term capital loss. You can set off the loss against long-term capital gain only. In case of losses from a few securities and gains from other securities, you can set-off the losses from the gains.
FAQs
Can I file ITR 2 if I have capital gains?
Yes. If you have capital gains, then you will have to file ITR-2. Also, if you have business income with a capital gain, then you will have to file ITR-3.
How do you calculate capital gains on listed shares?
In the case of listed equity shares, the capital gain is computed in the manner below.
Sale value – Cost of acquisition = Capital gain
If you have held listed equity shares or mutual fund (Equity) for more than 1 year on which STT is paid, Then it is considered a long-term capital gain, and such details need to be declared in Schedule 112A.