Section 112A
Section 112A of the Income Tax Act, 1961 taxes long-term capital gains arising from the transfer of listed equity shares, equity-oriented mutual fund units, and units of a business trust at 12.5% on gains exceeding ₹1.25 lakh per financial year, without the benefit of indexation — the provision introduced by Finance Act 2018 following the withdrawal of the Section 10(38) exemption.
Section 112A was inserted into the Income Tax Act by the Finance Act 2018, effective from April 1, 2018 (Assessment Year 2019–20 onwards), to fill the void left by the repeal of Section 10(38). The provision was carefully designed to minimise disruption: it introduced a concessional rate rather than slab-rate taxation, maintained a meaningful annual exemption, and grandfathered gains accrued up to January 31, 2018.
The original rate under Section 112A was 10% on LTCG above ₹1 lakh. Budget 2024 revised both parameters: the rate was increased to 12.5%, and the annual exemption was raised to ₹1.25 lakh, effective July 23, 2024. The rate increase affected a large segment of equity investors, while the modestly higher exemption was seen as a partial offset.
Section 112A explicitly denies the indexation benefit. This is a deliberate policy choice — equity assets are already accorded preferential treatment through the concessional rate, and applying indexation on top would make the effective tax negligible. The denial of indexation for equity LTCG contrasts with Section 112, which permits indexation for non-equity long-term assets.
The section covers three categories of assets: listed equity shares, units of equity-oriented mutual funds, and units of a business trust (REITs and InvITs). For all three, the STT condition must be satisfied — meaning the sale must occur on a recognised stock exchange with STT paid. Shares transferred off-market, such as in gifts or off-market ESOP deliveries, may not qualify for Section 112A treatment.
A point often overlooked is that Section 112A does not provide a per-transaction exemption — the ₹1.25 lakh exemption is applied on the net LTCG for the entire financial year across all qualifying assets. Taxpayers who book LTCG from multiple equity assets must aggregate all gains and losses before applying the exemption. Capital loss set-off provisions under Section 70 and 74 interact with Section 112A, allowing LTCG losses from equity assets to be carried forward for eight years to offset future LTCG.