Section 112A - Capital Gains on transfer of Specified Long Term Capital Asset

• Section 112A of the Income Tax Act 1961, prescribes provisions for taxation of specified long term capital asset.

• The specified long term capital asset for the purpose of this section includes equity share in a company, unit of an equity oriented fund or a unit of a business trust.

• Tax on Long Term Capital Gains on transfer of such asset shall be taxable at the rate of 10% on the amount of capital gains in excess of Rs. 1,00,000/-. This means exemption of Rs. 1,00,000/- is provided on transfer of such asset and amount of capital gain above Rs. 1,00,000/- will only be taxable.

• However, such taxation shall have effect only if following conditions are satisfied:

• Securities Transaction Tax (STT) has been paid on both acquisition and transfer of equity share of a company.

• Securities Transaction Tax (STT) has been paid on transfer of unit of an equity oriented fund or a unit of a business trust.

• Tax on balance income of the assessee shall be calculated in a normal manner after considering the relevant provisions for taxation of such balance income.

• Proviso to sub-section (2) states that where the balance net taxable income of the assessee i.e. income without considering the income u/s 112A is less than the basic exemption limit, the amount of long term capital gains u/s 112A shall be reduced by unexhausted basic exemption limit. However, this proviso is only applicable in case of an assessee being an Individual or HUF, resident in India.

• Where transfer of specified asset takes place on a recognized stock exchange located in any International Financial Services Centre (IFSC) and where consideration is received or receivable in foreign currency, the requirement of paying STT shall not apply.

• Any deduction under Chapter VI-A shall not be allowed on income taxable u/s 112A which is included in the Gross Total Income of the assessee.

• Rebate u/s 87A of the Act shall not be allowed on tax calculated on income u/s 112A of the Act. 

• Third proviso to section 48 provides that in case of specified long term capital asset referred to in this section, the benefit of indexation will not be available. 

• Section 55 of the Act prescribes cost of acquisition of equity shares or units of equity oriented fund or units of business trust acquired before 1st February 2018.

• The cost of acquisition shall be higher of Step I and Step II:

• Step I : Cost of acquisition

• Step II : Lower of Fair Market Value (FMV) as on 31st January 2018 and Full Value of Consideration as per section 48.

• Rules for calculation of FMV as on 31.01.2018 : 

• In case of equity shares/units listed on a recognized stock exchange : FMV = Highest price quoted on 31.01.2018. If no trading took place on 31.01.2018, highest price on such stock exchange on date preceding 31.01.2018 when shares/units were traded on such stock exchange. 

• In case of equity shares/units not listed on recognized stock exchange as on 31.01.2018 : 

• In case of unit : FMV = NAV as on 31.01.2018

• In case of equity shares : FMV shall be calculated using the following formula : 

                                                    COA * CII for the year 2017-18 i.e. 272

                                                                CII for the year in which share 

                                                                first held by assessee or PY 01-02 

                                                                whichever is later.