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Section 112 – Tax Payable on Total Income in Case of LTCG

Last Update Date : April 27, 2018

Who in this world does not like to earn profits/gains? Everyone does, right! Long Term Capital Gain usually arises if the asset or investment is withheld for longer span of time. Income Tax department has laid down rules and regulations for everything, you gain. In case you an individual/Domestic company/NRI/ any other residents and interested in trading of securities or a LTCG lover. Here is what you should know about Section 112-Tax on Long Term Capital Gains.

Section 112 of Income Tax Act

Tax Payable on Total Income in Case of LTCG

Where the total income of an assessee include the gains arising from the sale/transfer of long-term capital asset, which is chargeable to tax, the tax payable on total income for such an assessee shall be the aggregate of (1) and (2) below.

For Individuals and Hindu Undivided Family (HUF)

  1. Income tax should be calculated on the amount of the total income being reduced by the amount of such capital gains considering the reduced amount to be the total income of the assessee.
  2. Tax on LTCG: Income tax on such long term capital gains shall be calculated at the rate of 20%.
    Provided that where the reduced total income falls below the basic exemption limit, the long-term capital gains shall be reduced by the difference between the reduced total income and the basic exemption limit. Tax on the balance of the capital gains shall be charged at the rate of 20%.

For Domestic Company

  1. Income tax should be calculated on the amount of the total income being reduced by the amount of such capital gains considering the reduced amount to be the total income of the assessee.
  2. Tax on LTCG: Income tax on such long term capital gains shall be calculated at the rate of 40%.
    Provided that in relation to long-term capital gains arising to a venture capital company from the transfer of equity shares of venture capital undertakings, such capital gains shall be taxed at 20% instead of 40%.

For Non-Resident Individuals and Foreign Company

  1. Income tax should be calculated on the amount of the total income being reduced by the amount of such capital gains considering the reduced amount to be the total income of the assessee.
  2. Tax on LTCG: Income tax on such long term capital gains shall be calculated at the rate of 20%.
    It should be noted that, in case of non-resident individuals and foreign company, the tax payable on long-term capital gains arising from the transfer of a capital asset, being unlisted securities, is calculated at the rate of ten per cent on the capital gains in respect of such asset as computed without giving effect of indexation.

For any other case of Residents

  1. Income tax should be calculated on the amount of the total income being reduced by the amount of such capital gains considering the reduced amount to be the total income of the assessee.
  2. Tax on LTCG: Income tax on such long term capital gains shall be calculated at the rate of 20%.

Section 112(1)(C) – Capital Gains arising from the Transfer of Capital Asset being Listed Securities

Listed Securities or Zero Coupon Bonds: The capital gains arising from transfer of the long-term capital asset being listed securities (other than a unit) or zero coupon bonds exceed 10% of the amount of capital gains before giving the effect of indexation, such excess beyond 10% shall be ignored for the purpose of computation of tax payable by the assessee. The assessee has the 2 options for computing tax:

  • Tax at the rate of 20% on long-term capital gains considering the indexed cost of acquisition or improvement.
  • Tax at the rate of 10% on long-term capital gains considering the actual or the historical cost.

The assessee can exercise any option at his own discretion and can opt to switch or change the option in the same previous year. The option can be chosen judiciously comparing the tax liability under both the options. In case of bonus shares, the second option shall be applied by default.

Unit of a Mutual Fund: The capital gains arising from transfer of the long-term capital asset being units of a Mutual Fund specified under clause (23D) of section 10, during the period beginning from 1st April, 2014 to 10th July, 2014 exceed 10% of the amount of capital gains before giving the effect of indexation, such excess beyond 10% shall be ignored for the purpose of computation of tax payable by the assessee.

Points to be Noted

Deduction under Chapter VI-A: Where the gross total income of an assessee includes any income arising from the transfer of long-term capital asset, the gross total income shall be reduced by the amount of such capital gain and deduction under chapter VI-A shall be allowed as if the reduced gross total income were the gross total income of the assessee.

Rebate under Section 88: Where the total income of an assessee includes any income arising from the transfer of long-term capital asset, the total income shall be reduced by the amount of such capital gain and Rebate under section 88 shall be allowed from the income tax payable on such reduced total income.

Definitions for the Purpose of the Explanation above

Securities means:

  • Shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate
  • Derivative
  • Units or any other instrument issued by any collective investment scheme to the investors in such schemes.
  • Security receipt
  • Units or any other such instrument issued to the investors under any mutual fund scheme.
  • Government securities
  • Such other instruments as may be declared by the Central Government to be securities.
  • Rights or interest in securities.

Note: However, it should be noted that the shares of the private limited companies does not come under the ambit of securities.

Listed securities means the securities which are listed on any recognised stock exchange in India.

Unlisted securities means the securities which are not listed securities.

Venture Capital Company means a company approved by the Government of India which is engaged in providing finance to the venture capital undertakings mainly by:

  • acquiring equity shares of such venture capital undertakings
  • advancing loans to such undertakings

Venture capital undertaking means a company which qualifies for the following:

  • The total investment in such company does not exceed ₹ 10 Crores or such other higher amount as may be prescribed.
  • The company does not have adequate financial resources to undertake projects for which it is professionally or technically equipped.
  • The company seeks to enjoy any technology which will result in significant improvement over the existing technology in India in any field and the investment in such technology involves high risk.

At last but not the least, it can be summarised that the above in-depth guide on section 112 by H&R Block explained the taxation on long term capital gains and its implications on various residential heads and securities. Looking forward to e-file your return with more ease and with the help of experts, H&R Block would love to make your life easy taxing.

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