Long Term Capital Gains under section 112A of Income Tax Act 1961

Long Term Capital Gains under section 112A of Income Tax Act 1961

Central Government has inserted a new section 112A under Income Tax Act, 1961. The aim behind this section is to impose tax implications on the gains arising on account of transfer of equity share, units of equity oriented funds and units of the business trust. Before Assessment Year 2018-2019, long-term capital gain (LTCG) tax on transfer of equity share, units of equity oriented funds and units of business trust was exempted as per provisions of section 10 (38).

Applicability
Below mentioned is the applicability for long term capital gains under section 112A of Income Tax Act 1961:

  1. Section 112A shall be applicable from April 1, 2018 (A.Y. 2019-2020)
  2. Section 112A shall be applicable only in case where securities transaction tax has been paid at the time of transfer, and also on an acquisition in case of equity share / units of equity oriented funds.

Chargeability
Tax on long term capital gain on sale of equity shares, units of business trusts or units of equity oriented funds shall be levied @ of 10% on the gains over and above INR 1 Lakh without providing the benefits of indexation. To better understand the proposed amendment, given below is the further review of the LTCG implication in certain context:

Particular Implication
Purchase and sale before 31/1/2018 Exempt under Section 10(38)
Purchase before 31/1/2018
Sale after 31/1/2018 but before 1/4/2018
Exempt under Section 10(38)
Purchase before 31/1/2018
Sale on or after 1/4/2018
LTCG taxable
Gains accrued before 31/1/2018 exempt
Purchase after 31/1/2018
Sale on or after 1/4/2018
LTCG taxable

Calculation of Long-Term Capital Gain under Section 112A
Below mentioned is the calculation structure for long term capital gains under section 112A of Income Tax Act 1961:

  1. First and second provision to section 48 i.e. benefit of indexation of cost of acquisition and cost of improvement shall not be allowed while calculating long term capital gain tax under section 112A.
  1. Cost of acquisition for the assets acquired before February 1, 2018, shall be higher of the following:
    • The actual cost of acquisition, and
    • The lower of the fair market value of such assets and the full value of consideration received or accruing as a result of the transfer of the capital asset.
  1. Further, in case of NRI, benefit of indexation and benefit of calculation of capital gain in foreign currency will not be allowed in cases where section 112A is applicable.

Deductions under section 80C to 80U and/or rebate under section 87A shall not be allowed to the effect of capital gain levied effecting provisions of section 112A.

Carry Forward of Long-Term Capital Losses (“LTCL”) on Sale of such Shares
LTCL from a transfer made on or after April 1, 2018 will be allowed to be set-off against any other LTCGs and unabsorbed LTCL can be carried forward to subsequent eight years for set-off against LTCG.

E-filing
As per latest update dated July 19, 2019 from Income tax department, Taxpayers have an option to either enter the Scrip wise details of long term capital gains in Schedule 112A and 115AD (1) (iii) or enter the self-calculated aggregate value of long term capital gains directly under respective items in schedule CG in terms with Sec 112A or 115AD (1) (iii) without entering scrip wise details. Taxpayers may exercise either option based on their convenience. This facility is now available in ITR-2, 3, 5 & 6 utilities. Due date for filing ITR for AY 2019-20 is August 31, 2019 without payment of late fee.

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