Section 112A of the Income Tax Act – A Complete Summary

Vide Finance Bill 2018, the Government has come up with an insertion to section 112A under the Income Tax Act, 1961. The new section 112A has been inserted in order to levy a long-term capital gain tax on the transfer of equity share, units of equity-oriented funds and units of the business trust.

The main object behind the introduction of new section 112A is that the exemption from long-term capital gain tax on the transfer of equity share, units of equity-oriented funds and units of business trust has led to significant erosion in the tax base resulting in loss of revenue and due to abusive use of tax, arbitrage opportunities had been created because of the said exemption.

Here is the pointwise summary of the Section:

1. From Finance Act, 2018 the exemption allowed under Section 10(38) has been discontinued and a new section 112A has been introduced to tax such income which was earlier exempt under section 10(38).

2. If Assessee is having any capital gains on Long Term Assets being; 

(i) Equity Share in a company
(ii) Unit of Equity Oriented Fund
(iii) Units of Business Trust
Securities Transaction Tax (STT) has been paid on:

* Both Acquisition + Transfer [in case of Equity share in a Co.]; or
* Only on Transfer [In case of Units of Equity Oriented Fund/BusinesTrust]

Then such capital gains would be taxable at 10%. However, if the value of Capital gains is Up to Rs. 1,00,000 then NO TAX WOULD BE LEVIED and such capital gains would be totally exempt u/s 112A.

3. Further, In case of RESIDENT Individual/HUF, if their total income excluding this capital gains (u/s 112A) is below the maximum exemption limit then the remaining slab benefit would be allowed on such capital gains.

However, this benefit would be allowed only for the resident Ind. & HUF and not for any other kind of Assessee.

4. If the above transactions have been made in IFSC, then even if the STT is not paid on such transaction still the benefit of section 112A would be allowed.

5. The balance incomes apart from the above income shall be taxable at normal rates and Chapter-VIA deductions & Rebate u/s 87A shall also be allowed from such balance incomes.

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